Question
Generalized Least Squares method of estimation will not be suitable for dealing with which of the following problems :
(a) Autocorrelated disturbances (b) Heteroscedastic disturbances (c) Multi collinearity (d) Errors in variables
The correct answer is
(c) and (d)
GLS addresses heteroscedasticity and autocorrelation by using the disturbance covariance structure. It does not by itself remove multicollinearity or correct measurement-error bias in regressors. Therefore (c) and (d) are the correct choice.
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