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Exact interpretation of dummy variables in semilogarithmic equations

Author

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  • Kees Jan Van Garderen

    (Department of Quantitative Economics, Faculty of Economics and Econometrics, University of Amsterdam, The Netherlands and Department of Economics, University of Bristol)

  • Chandra Shah

    (Monash University-ACER Centre for the Economics of Education and Training, Faculty of Education, Monash University, Australia)

Abstract

This paper considers the percentage impact of a dummy variable regressor on the level of the dependent variable in a semilogarithmic regression equation with normal disturbances. We derive an exact unbiased estimator, its variance, and an exact unbiased estimator of the variance. The main practical contribution lies in a convenient approximation for the unbiased estimator of the variance, which can be reported together with Kennedy"s approximate unbiased estimator of the percentage change. The two approximations are very simple, yet highly reliable. The results are applied to teacher earnings and further illustrated by examples from the literature. Copyright Royal Economic Society 2002

Suggested Citation

  • Kees Jan Van Garderen & Chandra Shah, 2002. "Exact interpretation of dummy variables in semilogarithmic equations," Econometrics Journal, Royal Economic Society, vol. 5(1), pages 149-159, June.
    • Handle: RePEc:ect:emjrnl:v:5:y:2002:i:1:p:149-159
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