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Tut7 transformations

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Explains how to transform data in EViews, logs, differences

Explains how to transform data in EViews, logs, differences

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• 1. ECON321 Economic Analysis Tutorial 7 Transformations
• 2. Introduction
• The lecture on functional forms explains that you may want to transform your data and estimate non-linear relationships.
• This tutorial will show you how to do those transformations, but for more about the interpretations please refer to the chapter in Gujarati and the lecture PowerPoint slides.
• We use the model of house price (measured in dollars) as a function of:
• ROOMS: The average number of rooms in houses.
• NOX: The amount of nitrogen oxide in the air in parts per million.
• DIST: The distance of the community from employment centres in miles.
• STRATIO: The average student-teacher ratio of schools in the community.
• 3.
• 4. Using logs
• It maybe that the relationship is not this linear in parameters.
• For example, as pollution gets higher and higher, the associated decrease in the price become larger.
• You can check this by using a log-level model.
• 5.
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• 12. Using logs Model Dependent variable Independent variable Interpretation of Î² 1 Level-level y x âˆ† y = Î² 1 âˆ†x Level-log y log(x) âˆ† y = ( Î² 1 /100)%âˆ†x Log-level log(y) x %âˆ†y = (100* Î² 1 )âˆ†x Log-log log(y) log(x) %âˆ†y = Î² 1 %âˆ†x
• In addition to logs, you may want to use quadratics to examine increasing or decreasing returns.
• For example, there may not ne a straight-line positive relationship between the number of rooms and PRICE.