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PanJen: A test for functional form with continuous variables

Author

Listed:
  • Cathrine Ulla Jensen

    (Department of Food and Resource Economics, University of Copenhagen)

  • Toke Emil Panduro

    (Department of Food and Resource Economics, University of Copenhagen)

Abstract

PanJen provides users the opportunity to explore the relationship between a dependent variable and its covariates with minimal restrictions. The package offers an easy and data-driven way to choose a functional form in multiple linear regression models by comparing a range of parametric transformations. The parametric functional forms are benchmarked with a non-parametric smoothed relationship. The package allows users to generate plots that show the functional form relationship between the explanatory variable and the dependent variable. Furthermore, PanJen allows users to specify specific functional transformations, driven by an a priori and theory-based hypothesis. The plots and model fit metrics enable users to make an informed choice of how to specify the functional form the regression. We show that the PanJen ranking outperforms the Box-Tidwell transformation, especially in the presence of inefficiency, heteroscedasticity or endogeneity.

Suggested Citation

  • Cathrine Ulla Jensen & Toke Emil Panduro, 2016. "PanJen: A test for functional form with continuous variables," IFRO Working Paper 2016/08, University of Copenhagen, Department of Food and Resource Economics.
    • Handle: RePEc:foi:wpaper:2016_08
    as

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    References listed on IDEAS

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    More about this item

    Keywords

    linear regression; functional form; semi-parametric;
    All these keywords.

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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