Alternative Functional Forms

Question 1

When can OLS predict parameters

Answer 1

When linear in paramters

I.e it is fine if not linear in variables

Question 2

How to turn non-linear parameters into ways OLS applicable.

Answer 2

Logs

Question 3

What is β₀ in log form

Answer 3

β₀ = e to the α

Or lnβ₀= a

Question 4

Log linear model vs semi log model

Answer 4

Semi log is when only the dependent variable has been log transformed.

Question 5

Feature of the log linear model

Answer 5

Slope parameters are interpreted as elasticities

E.g in lnY= a + β₁lnX + lnε ,

If X is income, β₁ is the income elasticity!!