Re: [Gretl-users] HOW TO CORRECT FOR HETEROSCEDASTICITY WHEN DEALING WITH NON POSITIVE NUMBERS IN EVIEWS

On Fri, 9 Oct 2015, Sven Schreiber wrote: Sven's point is well taken. However, the question may have been motivated by the thought that "correcting for" heteroskedasticity may somehow involve taking logs, which of course can't be done for negative numbers. For the record, then, let's point out that the two basic approaches to heteroskedasticity in gretl -- namely, switching to "robust" standard errors, or switching from OLS to GLS via the "hsk" command -- do not require taking logs of negative numbers. The following script illustrates. The series y and x contain both positive and negative values, and the data-generating process is heteroskedastic by construction. <hansl> nulldata 50 set seed 3711 series x = normal() # generate heteroskedastic y series y = -1 + 3*x + normal()*x # verify we have negative values in both y and x print y x --byobs # run OLS ols y 0 x # try robust standard errors: no problem ols y 0 x --robust # try GLS: again, no problem hsk y 0 x </hansl> In this case the "hsk" command produces a closer approximation to the true x-slope of 3.0 (2.997, versus 3.098 from OLS), although obviously one would have to replicate the example a large number of times to verify that (as theory says) the hsk estimates are more efficient, given heteroskedasticity. What Eviews does, and whether it has a problem with negative x or y, I don't know. Allin Cottrell