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In econometrics what is the difference between the residual and the error? Please explain fully

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In econometrics what is the difference between the residual and the error? Please explain fully

by Chief of LearnyVerse
(321k points)
in Economics
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In econometrics what is the difference between the residual and the error? Please explain fully

1 Answer

by Chief of LearnyVerse
(321k points)
0 votes

ERROR

Error is explained as the variation  between true value and the observed one. The error term is mostly unobservable. Unlike residual value the term shows the way identified data varies from actual one .Mathematical model makes thee error term as connection between dependent and independent variables cannot bee completely represented. So in empirical analysis the equations vary by error term. It is also called disturbance and the letters e, u are used to show the error term. Uncertainty is also represented by the term in statistical model. Lack of perfectness can bee determined from this term. Error is the sum of all deviations. The correction within dependent and independent variable is found by the point off analysis about the regression line.

RESIDUAL VALUE

Salvage value or residual value explained as the calculated value for a fixed asset in useful life or at the lease term end of it. The major difference with error term is that residual value can be calculated and also observable value. In residual value variation from identified data and sample data is represented. But in error term identified and actual data variation is represented.  Residual value can be visualize and also quantify simply. Savage value is used as initial methods by the lesser in lease conditions in order to find amount the lessee has to pay in lease payment period. The value will be small when user life is more. the variation between cost of capital and profit give the residual value for investments.


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