Heteroskedasticity

Priyal Mundhra (21060242058)

1. Dataset
The following data is the final consumption expenditure and adjusted national income of
Australia for 2006-2019 expressed in current US$. As per definitions given by the World
Bank, Final consumption expenditure (formerly total consumption) is the sum of household
final consumption expenditure (private consumption) and general government final
consumption expenditure (general government consumption) and; Adjusted net national
income is GNI minus consumption of fixed capital and natural resources depletion.

Year Final_consumption_expenditure Adjusted_net_national_income

2005 52131784694.84 54069038391.54
2006 553660527103.92 576387861957.42
2007 631914893617.02 651072944831.94
2008 778718889883.62 803336222497.94
2009 671658813135.03 723361413158.73
2010 850186734783.76 886410571895.34
2011 1012941930395.35 1078643958582.76
2012 1121053825531.04 1215668643545.95
2013 1156923155842.82 1247069572099.66
2014 1081270540714.22 1144175543456.83
2015 1017203594309.01 1056290293181.08
2016 929645508807.69 946766793192.11
2017 1001547628026.25 1034183380361.74
2018 1075951476629.72 1106747125595.05
2019 1037532541839.51 1069193708469.21

2. Regression Model
The output is as:
SUMMARY OUTPUT

Regression Statistics
Multiple R 0.997900652
R Square 0.995805711
Adjusted R Square0.995483073
Standard Error 19649936414
Observations 15

ANOVA
df SS MS F Significance F
Regression 1 1.19174E+24 1.19E+24 3086.452 7.66823E-17
Residual 13 5.01956E+21 3.86E+20
Total 14 1.19676E+24

Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0%Upper 95.0%
Intercept 13391726932 16143659507 0.829535 0.421773 -21484529067 48267982931 -2.1485E+10 4.83E+10
Adjusted_net_national_income
0.939535913 0.016911557 55.55585 7.67E-17 0.903000716 0.976071111 0.903000716 0.976071
 The regression equation can be written as:

Final consumption expenditure = 13391726932 + 0.94(Net National Income)

The R² value is 0.9958 which means that 99.58% variation in consumption can be explained
by the income.

3. Heteroskedasticity

To test for Heteroskedasticity we first split the value into tables as given below. One for small
values of X i.e. National income omitting 1 of the middle observations as shown below.

Year Final_consumption_expenditure Adjusted_net_national_income

2005 52131784694.84 54069038391.54
2006 553660527103.92 576387861957.42
2007 631914893617.02 651072944831.94
2009 671658813135.03 723361413158.73
2008 778718889883.62 803336222497.94
2010 850186734783.76 886410571895.34
2016 929645508807.69 946766793192.11

2015 1017203594309.01 1056290293181.08

2019 1037532541839.51 1069193708469.21
2011 1012941930395.35 1078643958582.76
2018 1075951476629.72 1106747125595.05
2014 1081270540714.22 1144175543456.83
2012 1121053825531.04 1215668643545.95
2013 1156923155842.82 1247069572099.66

Now we run two ANOVA test for the separated datasets:

ANOVA for the smaller values:
ANOVA
df SS MS F Significance F
Regression 1 5E+23 5E+23 2546.403 5.7764E-08
Residual 5 9.83E+20 1.97E+20
Total 6 5.01E+23

ANOVA for the larger values:

ANOVA
df SS MS F Significance F
Regression 1 1.63E+22 1.63E+22 71.25859 0.000382853
Residual 5 1.14E+21 2.28E+20
Total 6 1.74E+22
Now,
Ratio of the ESS of
the second
1.160920399
regressin to the
first regression =
Degrees of Freedom 6

In this case, FTAB = 4.28. Therefore FCAL < FTAB, hence there is no heteroskedasticity in the data.