Explain why an error term is added to the regression model. What assumptions are made about the error term? What are the implications of such assumptions? What will happen to the estimators of the parameters of the regression model, if these assumptions are violated?
Introduction In econometric modeling, a regression equation is used to express the relationship between a dependent variable and one or more independent variables. However, this relationship is not always perfect. There are many factors that influence the dependent variable which are either unobserved or not included in the model. To account for these unknown influences, […]