INTRODUCTION TO ECONOMETRICS II
ECO 306
NOUN
44
v.
Measurement error: If the measurement of one or more of the variables in the relationship is subject to error, the observed values will not appear to conform to an exact relationship, and the discrepancy contributes to the disturbance term. The disturbance term is the collective outcome of all these factors. Obviously, if you were concerned only with measuring the effect of X on Y, it would be much more convenient if the disturbance term did not exist. Were it not for its presence, the P points in Figure 2.1 would coincide with the Q points. Therefore, it would be known that every change in
Y from observation to observation was due to a change in X, and you would be able to calculate
and
, exactly. However, part of each change in Y is due to a change in μ, and this makes life more difficult. For this reason, μ is sometimes described as noise.
Share with your friends: |
