
From  Sebastian Baumeister <[email protected]> 
To  [email protected] 
Subject  Re: st: Grid Search in a Log Plus Constant Model 
Date  Thu, 09 Nov 2006 09:14:02 +0100 
I am working with health data (MEPS) where
outofpocket medical expenses (OOP) are a dependent
variable in an OLS regression. Because of the
positive skewness of such a variable, I would like to
use a normalizing transformation, i.e. the log of OOP.
However, because of the many zero observations for
OOP, the options are to either add a constant to OOP,
(some have used $1 arbitrarily), or to model the data
separately for the zeroes and the positive values,
which I'd rather not do. (I have also considered the
square root transformation, etc., but would like to
test out the results using a logconstant).
My question is: do you know of a method for searching
for the optimal constant to add to a variable so that
a logtransformation produces the optimal result? Deb
et al. (2005), suggest a 'grid search' for this value
(see link below for document). I know that grid
searches are used in the context of maximum
likelihood; is this a similar process? Would running
the model with different values and comparing R2s and
standard errors be more appropriate?
Thanks very much for your time!
Paul Jacobs
Ph.D. Candidate, Economics
American University
Link to Deb, et al presentation:
harrisschool.uchicago.edu/faculty/articles/iHEAminicourse.pdf
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