Concept

Non-linear least squares

Summary
Non-linear least squares is the form of least squares analysis used to fit a set of m observations with a model that is non-linear in n unknown parameters (m ≥ n). It is used in some forms of nonlinear regression. The basis of the method is to approximate the model by a linear one and to refine the parameters by successive iterations. There are many similarities to linear least squares, but also some significant differences. In economic theory, the non-linear least squares method is applied in (i) the probit regression, (ii) threshold regression, (iii) smooth regression, (iv) logistic link regression, (v) Box–Cox transformed regressors (m(x,\theta_i) = \theta_1 + \theta_2 x^{(\theta_{3})}). Theory Consider a set of m data points, (x_1, y_1), (x_2, y_2), \dots, (x_m, y_m), and a curve (model function) \hat{y} = f(x, \boldsymbol \beta), that in addition to the variable x also depends on n
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