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Econometrics data transformation

Econometrics I Summer 2011/2012 Course Guarantor :  prof. Ing. Zlata Sojková, CSc ., Lecturer : Ing. Martina Hanová, PhD. . Econometrics data transformation. Linearity: The true relationship between the mean of the response variable E(Y) and the

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Econometrics data transformation

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  1. Econometrics I Summer 2011/2012 Course Guarantor:  prof. Ing. Zlata Sojková, CSc., Lecturer: Ing. Martina Hanová, PhD. Econometricsdata transformation

  2. Linearity: The true relationship between the mean of the response variable E(Y) and the explanatory variables X1, ... Xn is a straight line. Assumption of Ordinary Least Squares

  3. Cobb–Douglas production function • Y = total production (the monetary value of all goods produced in a year) • L = labor input • K = capital input • A = total factor productivity • α and β – output elasticities Thelog-logtransformation

  4. Log – log model

  5. B1 and B2 - elasticities of labor and capital. These values are constants determined by available technology. • Elasticity - percentage change in Y for a given (small) percentage change in X ELASTICITY

  6. Log – Lin model Lin – Log model to measurethegrowth rate - Log-Lin model Semi-log transformation

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