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Tests of Inference for Dummy Variables in Regressions with Logarithmic Transformed Dependent Variables

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Author Info
Jenny N. Lye
Joseph G. Hirschberg

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Abstract

The interpretation of dummy variables in regressions where the dependent variable is subject to a log transformation has been of continuing interest in economics. However, in the main, these earlier papers do not deal with the inferential aspects of the parameters estimated. In this paper we compare the inference implied by the hypotheses tested on the linear parameter estimated in the model and the tests applied to the proportional change that this parameter implies. An important element in this analysis is the asymmetry introduced by the log transformation. Suggestions are made for the appropriate test procedure in this case. Examples are presented from some common econometric applications of this model in the estimation of hedonic price models and wage equations.

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File URL: http://www.economics.unimelb.edu.au/SITE/research/workingpapers/wp02/852.pdf
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Paper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 852.

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Length: 17 pages
Date of creation: 2002
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Handle: RePEc:mlb:wpaper:852

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Related research
Keywords: Hypothesis tests lognormal distribution measures of proportional change wage equation hedonic price model

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Find related papers by JEL classification:
C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Hypothesis Testing
C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
R15 - Urban, Rural, and Regional Economics - - General Regional Economics - - - Econometric and Input-Output Models; Other Methods
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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  1. Giles, David E. A., 1982. "The interpretation of dummy variables in semilogarithmic equations : Unbiased estimation," Economics Letters, Elsevier, vol. 10(1-2), pages 77-79. [Downloadable!] (restricted)
  2. Halvorsen, Robert & Palmquist, Raymond, 1980. "The Interpretation of Dummy Variables in Semilogarithmic Equations," American Economic Review, American Economic Association, vol. 70(3), pages 474-75, June. [Downloadable!] (restricted)
  3. Hirschberg, J. & Lye, J.N., 1999. "Wages and Alcohol Consumption, Smoking, Weight Gain and Exercising: Evidence on Australian Men and Women," Department of Economics - Working Papers Series 684, The University of Melbourne.
  4. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb.. [Downloadable!] (restricted)
  5. Hayes, K.J. & Hirschberg, J. & Lye, J. & Taylor, L.L., 1999. "Multivariate Generated Regressors and Heteroskedasticity in a Cross-Section: an Application to the Value of Neighborhood Schools," Department of Economics - Working Papers Series 692, The University of Melbourne.
  6. Borland, J & Hirschberg, J & Lye, J, 1997. "Computer Knowledge and Earnings : Evidence for Australia," Department of Economics - Working Papers Series 571, The University of Melbourne.
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