Suppose you are running the regression line where Y is dependent variable while X1 and X2 are independent. After runing the regression model, you see that residual of the model is heteroscedastic, which is not desirable.
To solve the problem, there are many ways. One of the ways, convert all variables into natural log, that is lnY, lnX1 and lnX2. Then run the regression line agin. You may find that residual is no longer heteroscedastic. It has become homoscedastic whioh is desirable.
No comments:
Post a Comment