This paper reviews the algorithms used by Vector Signal Analyzers to measure Modulation Error Ratio (MER) and derives the explicit functional dependence of measured MER on phase noise of digital transmitters. The modulation error model is introduced and the analytical expression for key estimated parameters required to obtain MER measure are derived. The essential elements of algorithms employed by MER measurement instruments to estimate amplitude scale, frequency offset, and initial phase intercept and the resulting MER are identified. The frequency response of the effective phase-noise rejection filtering action associated with a given measurement epoch is derived. It is shown that this effective rejection filter has a second-order high-pass characteristics in MER instruments that use linear phase trajectory estimation. This result is subsequently applied in analyzing a typical Lorentzian density phase noise profile to obtain an explicit expression for phase-noise-induced MER values as a function of measurement block duration. Finally, certain implications of this study to MER measurement and specification practices including the Data-Over-Cable Service Interface Specifications (DOCSIS®) are identified.