Fitting Negatively Valued Functions in Econometric Modeling. A Simple Solution

We suggest a simple yet novel solution for fitting negatively valued functions in economic modeling and treating the econometric issues of estimation arising. To this end, we suggest representing complex arguments by simpler, more intuitive arguments in polar coordinates which, in turn, allow us to estimate the parameters of a model via conventional econometric methods. The polar representation is easy to compute as each point on a plane is determined by a distance from a reference point and an angle from a reference direction. To further highlight the economic importance of the transformation suggested, we also establish a model for the effect of the external factor on the output by relaxing the assumption that the level of the output is strictly positive, and thus, the right side of the equation may contain a negative quantity