Case Detail

Case Summary

Practical Regression: Log vs. Linear Specification

Case Number: 7-112-007, Year Published: 2012

HBS Number: KEL641

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Authors: David Dranove

Key Concepts

Economics, Market Research, Statistical Methods

Abstract

This is the seventh in a series of lecture notes which, if tied together into a textbook, might be entitled “Practical Regression.” The purpose of the notes is to supplement the theoretical content of most statistics texts with practical advice based on nearly three decades of experience of the author, combined with over one hundred years of experience of colleagues who have offered guidance. As the title “Practical Regression” suggests, these notes are a guide to performing regression in practice.
This note explains how to choose between log and linear specification. The note emphasizes the economic interpretation of a log model and how to interpret coefficients in a log regression. The note concludes by explaining how to choose between log and linear specifications on econometric grounds, including an explanation of the Box-Cox test.

Learning Objectives

Students will learn the following:
-The economic interpretations of log-linear and log-log specifications
-How to interpret coefficients in log models
-Econometric justifications for using log models, including graphical and statistical tests for log specification
-A step-by-step guide for choosing between log and linear specification

Number of Pages: 13

Extended Case Information

Teaching Areas: Finance