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    Stochastic Regression Functions

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    What are the similarities and/or differences between a stochastic population regression function (PRF) and a stochastic sample regression function (SRF)?

    © BrainMass Inc. brainmass.com October 10, 2019, 5:35 am ad1c9bdddf
    https://brainmass.com/economics/econometric-models/stochastic-regression-functions-510274

    Solution Preview

    Hello,

    First I would to clarify some important concepts.

    - What is a regression?
    It is a mathematical expression or a function which shows how 2 or more variables are related. So in a regression we have 1 dependent variable, 1 or more independent variable(s) and an error term. These variables can have a linear or a non-linear relationship depending what theory we want to express with the regression. For example, we know that consumption is a function of income, and other assets. Is this a linear relationship? Yes, because we spend more when we have more money.

    The error term indicates that the regression is a stochastic function, i. e. it depends on human behavior. Therefore its estimates will not be 100% accurate. Remember that in econometrics we are dealing with probabilities therefore ...

    Solution Summary

    The similarities and/or differences between a stochastic population regression function (PRF) and a stochastic sample regression function (SRF).

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