In Econometrics how do you interpret the Rsquared in each of

In Econometrics, how do you interpret the R-squared in each of the four alternative functional forms? (lin-lin,log-log,log-lin,lin-log)

Solution

Lin-lin - This is a standard linear model. The R squared here shows the percentage of the variation in the dependent variable explained by the independent variable.

Log-log - This shows the rate of change of the dependent variable in response to the rate of change of the independent variable. Thus here the R squared will be the proportion of the percentage change in the dependent variable explained by the percentage change in the independent variable.

Log-lin - This shows the effect of a unit change in X on the percentage change on Y. Thus the R squared here would be the proportion of the percentage change in Y explained by a unit change in X.

Lin-log - This shows the effect of a percentage change in X on a unit change in Y. Thus the R squared here would be the proportion of the unit change in Y explained by a percentage change in X.