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RE: st: Log transformation of Dependent and Independent Variables
I agree, on the understanding that when you say "dispersed"
you mean "skewed". Taking logs on both sides makes sense
if the relationship is multiplicative rather
than additive, but in no sense is it compulsory.
In addition to this, taking logs of dummy variables
is problematic as log 0 is indeterminate. With
any coding of dummy variables as two positive
values, say a, b > 0, then I guess you would find
that mapping a dummy to log a, log b boils down
to the same thing, just messier.
> yes, this is a common thing to do. wage regressions are a
> good example.
> economists usually take the log of the dependent variable
> (wages). and
> then some regressors (such as education) typically enter the equation
> linearly -- including some dummy variables like race or sex dummies.
> while other regressors (such as parents' income) typically
> enter in log form.
> > The dependent variable in my data set is highly dispersed
> and I intend to
> > take a log transformation. However, there are a few dummy
> > variables. Can I simply take a log transformation of the DV
> and a few
> > dispersed IVs and let the dummy variables and the less
> dispersed variables
> > remain as they are?
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