Which of the following correctly identifies a limitation of logarithmic transformation of variables?
A. Taking log of variables make OLS estimates more sensitive to extreme values in comparison to variables taken in level.
B. Logarithmic transformations cannot be used if a variable takes on zero or negative values.
C. Logarithmic transformations of variables are likely to lead to heteroskedasticity.
D. Taking log of a variable often expands its range which can cause inefficient estimates.
Answer: B
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A case for equality of income distribution can be based on
a. the randomness of personal misfortune b. the linkage between effort and reward c. the ethic "from each according to his or her ability to each according to his or her ability" d. allowing the market to dictate outcomes e. maximization of opportunity
An economic problem with using subsidies or price ceilings to move a monopoly toward the competitive equilibrium is that
a. it may increase monopoly profits. b. it may decrease monopoly profits. c. policy makers may not be able to determine what the competitive equilibrium is. d. policy makers always need to be lobbied before taking any actions.