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st: Spline Regressions and Log-Log Models

From   Thad Daniel Calabrese <>
Subject   st: Spline Regressions and Log-Log Models
Date   Wed, 19 May 2010 12:05:22 -0400

I've been modeling the relationship between an organization's income and its accumulated wealth. The existing literature has a fairly standard log-log model with income as the DV and wealth as one of the IVs. All variables in the literature are logged.

When I log my wealth variable and graph it against the log of income, the variable's linearity is certainly improved, but it is obviously not perfectly straight (nor did I expect it to be).

The question I have is this: could I attempt to improve the model fit using spline regression? I've only seen splines used on non-transformed (but normalized) independent variables. I assume there must be a reason for that and so it concerns me to try with transformed data.

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