Functional Form(continued) o First, use economic theory to guide you Think about the interpretation e Does it make more sense for x to affect y percentage(use logs)or absolute terms Does it make more sense for the derivative of x, to vary with x,(quadratic) or with x2 (interactions)or to be fixed? Economics 20- Prof andersonEconomics 20 - Prof. Anderson 3 Functional Form (continued) First, use economic theory to guide you Think about the interpretation Does it make more sense for x to affect y in percentage (use logs) or absolute terms? Does it make more sense for the derivative of x1 to vary with x1 (quadratic) or with x2 (interactions) or to be fixed?