Question

Explain the statistics and econometrics regression equations?

Answer 1

Statistics Regression:

Y_i = β₀ + β₁X₁

Econometrics Regression:

Y_i = β₀ + β₁ X_i + U_i

(with more than 2 variables) or

Y = β₀ + β₁ X₁ + β₂ X₂ + β₃ X₃ + U_i

1. Systematic Part: β₀ + β₁ X₁ or explained part and Random Part: U_f unexplained part in a regression.

2. U represents the role of omitted variables in specifying a regression relationship of Y on X. 

3. Hence, the U_i cannot and should not be ignored.