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Unformatted text preview: ns to the R 2 ? Melissa Tartari (Yale) Econometrics 43 / 93 Algebraic Properties: Unit of Measurement II What happens to the R 2 ?
It remains unchanged (as it intuitively should). Melissa Tartari (Yale) Econometrics 43 / 93 Algebraic Properties: Unit of Measurement II What happens to the R 2 ?
It remains unchanged (as it intuitively should). Let us see why:
R 20 = b
SSE 0
∑n (y 0
= in=1 i0
0
SST
∑i =1 (yi Melissa Tartari (Yale) y 0)
¯ 2 y 0 )2
¯ = Econometrics c ∑n=1 (yi
b
i c ∑n=1
i (yi y )2
¯
y)
¯ 2 = SSE
= R2.
SST 43 / 93 Incorporating Nonlinearities We can incorporate nonlinearities by appropriately de…ning dependent
and independent variables. Melissa Tartari (Yale) Econometrics 44 / 93 Incorporating Nonlinearities We can incorporate nonlinearities by appropriately de…ning dependent
and independent variables.
Consider for instance wage = f (educ , u ) where u = ability . Melissa Tartari (Yale) Econometrics 44 / 93 Incorporating Nonlinearities We can incorporate nonlinearities by appropriately de…ning dependent
and independent variables.
Consider for instance wage = f (educ , u ) where u = ability .
Up to now we have worked with (2.1):
wage = βo + β1 educ + u Melissa Tartari (Yale) Econometrics (7) 44 / 93 Incorporating Nonlinearities We can incorporate nonlinearities by appropriately de…ning dependent
and independent variables.
Consider for instance wage = f (educ , u ) where u = ability .
Up to now we have worked with (2.1):
wage = βo + β1 educ + u (7) We next consider three alternative functional relationships that
appear often in applied work. Melissa Tartari (Yale) Econometrics 44 / 93 The Constant PercentageE¤ect Model I
The dVar appears in logarithmic form:
log wage = βo + β1 educ + u Melissa Tartari (Yale) Econometrics 45 / 93 The Constant PercentageE¤ect Model I
The dVar appears in logarithmic form:
log wage = βo + β1 educ + u
Observe that now β1 100 gives the % change in wage given one
additional year of education.
∆%wage
∆educ Melissa Tartari (Yale) d (log wage )
d (educ ) Econom...
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This note was uploaded on 02/13/2014 for the course ECON 350 taught by Professor Donaldbrown during the Fall '10 term at Yale.
 Fall '10
 DonaldBrown
 Econometrics

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