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Econometric (Heteroscedasticity) Question: If an independent variable that has non-constant variance is dropped from the model,...

Econometric (Heteroscedasticity) Question:

If an independent variable that has non-constant variance is dropped from the model, the residuals will be homoscedastic. True or False, and why?

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Answer #1

Answer) Homoscedasticity in econometrics is defined as a situation where the variance of the error term across every independent variable is constant.

However, heteroscedasticity in contrast to this is referred to as a situation whereby the error term has the non-constant variance across the values of the independent variable.

Hence, going by the definition of homoscedasticity and heteroscedasticity, it is clear that, when an independent that has non-constant variance is dropped from the model, the remaining residuals will be homoscedastic is "TRUE" .

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