PRF | SRF | CLRM |L-1|ECONOMETRICS

What Is Econometrics?

Econometrics is the use of statistical and mathematical models to develop theories or test existing hypotheses in economics and to forecast future trends from historical data. It subjects real-world data to statistical trials and then compares the results against the theory being tested.

Depending on whether you are interested in testing an existing theory or in using existing data to develop a new hypothesis, econometrics can be subdivided into two major categories: theoretical and applied. Those who routinely engage in this practice are commonly known as econometricians.

Population regression function (PRF) :

A population regression function is a linear function, which hypothesizes a theoretical relationship between a dependent variable and a set of independent or explanatory variables at a population level. A stochastic error terms is present in the regression model as well.

Sample regression function (SRF) :

It is the sample counterpart of the population regression function. Different samples will generate different estimates because SRF is obtained for a given sample. It is written as follows: These are the fitted values of the population estimators.

Classical Linear Regression Model (CLRM) :

These assumptions, known as the classical linear regression model (CLRM) assumptions, are the following: The model parameters are linear, meaning the regression coefficients don’t enter the function being estimated as exponents (although the variables can have exponents).