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The Newey-West standard errors should be used to: Select one: A
The Newey-West standard errors should be used to:
Select one:
A. Correct the OLS coefficient estimates when there is evidence that the estimated residuals are heteroscesdastic and serially correlated
B. Correct the OLS coefficient estimates when there is evidence that the estimated residuals are heteroscesdastic but not serially correlated
C. Correct the t-statistics in the regression when there is evidence that the estimated residuals are heteroscesdastic but not serially correlated
D. Correct the t-statistics in the regression when there is evidence that the estimated residuals are heteroscesdastic and serially correlated
E. Correct the R2statistic in the regression when there is evidence of non-normality in the estimated residuals
Expert Solution
Answer: (A)
The Newey-West estimator refers to a method used in econometrics, as well as statistics in order to provide the estimation of the covariance matrix, where the model is of regression type.
This model is used, and applied in cases where the situation does not comply with the regression analysis standard assumptions.
This estimator is used widely in order to overcome the errors of autocorrelation, and heteroskedasticity. Autocorrelation is also known as serial correlation.
Autocorrelation is often found in time series, where there is presence of correlation between the error terms over time.
So this Newey-West estimator is used to correct those coefficient estimates of OLS, where it is given that the residuals are serially correlated, and heteroscesdastic.
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