The functional relationship between them may only require one to be transformed in order to normalize the residuals or get a linear relationship.
So between these two log regressions:
1) transform y into log but keep X normal
2) transform both the y and x into log
When or what would be a logical explanation for only transforming y and not c over transforming them both?
The functional relationship between them may only require one to be transformed in order to normalize the residuals or get a linear relationship.
Stop cowardice, ban guns!
Jazz3 (04-08-2017)
What matters is if the model fits to the data. If the model does not fit, then the model is rejected.
If you have an hypothesis of "diminishing returns" then that is something that can be tested with the data. Models are not sacrosanct, holy scriptures. They can and should be tested.I've also heard that it depends on your research, for example if you expect diminishing returns?
Jazz3 (04-18-2017)
Agreed. Some fields prefer to talk about relationships on relative instead of absolute terms. Though, regardless of the model used it must fit data and meet assumptions.
Stop cowardice, ban guns!
Just to make it more clear, what hlsmith said about the functional form:
1. if you only transform Y you have a relationship like log Y = a1*x1+ a2*x2 -> Y=exp(a1*x1+a2*x2)
2. if you transform both then logY = a1*log(x1)+a2*log(x2) -> Y = x1**a1*x2**a2
regards
Jazz3 (04-18-2017)
Thanks for all the information! Really helpful
But to come back to diminishing returns to scale I know this applies for log log regression, but also for log linear regressions?
In economics I think, where this type of analysis is most common I believe, there are theoretical reasons commonly for which to log.
"Very few theories have been abandoned because they were found to be invalid on the basis of empirical evidence...." Spanos, 1995
Jazz3 (04-18-2017)
I've been going through some economics book but I can't find anything about diminishing returns and a log linear. I guess it only applies for log-log
Can anyone confirm this?
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