Interactions in Regressions
AbstractRegression specifications frequently employ regressors that are defined as the product of two other regressors to form an interaction. Unfortunately, these models have a number of potential difficulties when it comes to interpretation. In this paper, we discuss two common aspects of these specifications that can lead to difficulties. The first is the change in parameter estimates and tstatistics when different definitions of dummy variables are used. The second involves an application of Fieller’s theorem to draw appropriate inferences from a regression with interaction variables.
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Bibliographic InfoPaper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 952.
Length: 13 pages
Date of creation: 2005
Date of revision:
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Interaction effects; dummy variables; linear transformation; Fieller method;
Find related papers by JEL classification:
- C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-03-18 (All new papers)
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