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SIMPLE LINEAR REGRESSION Transforming the predictor variable

If it is thought that instead of the model

Y = β0 + β1 X + ε

the model
Y = β0 + β1 X α + ε
would provide a better fit to the data, the appropriate value of α needs to be obtained.

If the model
Y = β0 + β1 X + ηX ln X + ε
is fitted and the parameter η is non–zero, α can be estimated by

η̂
α= +1
β̂1

where β1 is estimated from the original model and η is estimated from the transformed
model. If an estimate of zero is obtained for α, the appropriate transformation is to
take X α as ln X.

5.1
SIMPLE LINEAR REGRESSION Transforming the response variable

If it is thought that instead of the model

Y = β0 + β1 X + ε

the model
Y λ = β0 + β1 X + ε
would provide a better fit to the data, the appropriate value of λ needs to be obtained.

If the model
Y = β0 + β1 X + φG + ε
is fitted and the parameter φ is non–zero, λ can be estimated by

λ̂ = 1 − φ̂.

The value of the variable gi to be used in the regression can be defined by

gi = yi {ln[yi /GM (y)] − 1}

where GM (y) is the geometric mean of values of the response variable.

5.2

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