ECONOMETRICS

Q.1.1 A new student of econometrics learned in class that economic theory' is newr important. In a research project, she proposed the following theoretical regression equation: 12:13:: +i81Xi+Ei where ei is the stochastic error term. After collecting data using the (Lirdinaryir Least Squares {0L5} method, she obtained the estimated regression equation: Pi = 0.025 + 21.?52 X1- {1.1-1.1 Explain the difference between the theoretical and estimated regression {4] equations above. {1.1.1.2 Describe the OLE technique for estimating regression models and discuss {4] the reasons why it is often used