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ECS3706 Assignment 2 Semester 2 2023Β Due Date: 29 September 2023 (Complete Answers)
ECS3706 Assignment 2 Semester 2 2023 Complete answers for all the questions provided in your assignment.Β Β All answers have been completed in accordance with the corresponding questions and should be used as guidelines.
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QUESTIONΒ A1
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a.
Β·Β Definition: The stochastic error term, also known as the disturbance term or theΒ random error term, represents the unexplained variation in the dependent variableΒ thatΒ cannotΒ beΒ accountedΒ forΒ byΒ theΒ independentΒ variables.Β ItΒ isΒ aΒ theoreticalΒ conceptΒ that is not directly observable. On the other hand, the residual refers to the actualΒ differenceΒ betweenΒ theΒ observedΒ valueΒ ofΒ theΒ dependentΒ variableΒ andΒ theΒ predictedΒ value based on the independent variables. It is calculated as the observed valueΒ minus theΒ predictedΒ value.
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Β·Β Representation: The stochastic error term is typically denoted byΒ “Ξ΅” or “u” inΒ equationsΒ andΒ models,Β whereasΒ theΒ residualΒ isΒ denotedΒ byΒ “e”Β orΒ “r”.Β TheΒ stochasticΒ error term is usually represented in mathematical equations and models, while theΒ residualΒ isΒ calculatedΒ andΒ observedΒ in numericalΒ values.
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