Interpreting interaction terms in linear and non-linear models: A cautionary tale
AbstractInteraction terms are often misinterpreted in the empirical economics literature by assuming that the coefficient of interest represents unconditional marginal changes. I present the correct way to estimate conditional marginal changes in a series of non-linear models including (ordered) logit/probit regressions, censored and truncated regressions. The linear regression model is used as the benchmark case.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 33251.
Date of creation: Jul 2011
Date of revision:
interaction terms; ordered probit; ordered logit; truncated regression; censored regression; nonlinear models;
Find related papers by JEL classification:
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
- C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
- C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models
- C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
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- Greene, William, 2010.
"Testing hypotheses about interaction terms in nonlinear models,"
Elsevier, vol. 107(2), pages 291-296, May.
- William H. Greene, 2009. "Testing Hypotheses About Interaction Terms in Nonlinear Models," Working Papers 09-08, New York University, Leonard N. Stern School of Business, Department of Economics.
- Andreas Drichoutis & Rodolfo Nayga, 2011. "Marginal Changes in Random Parameters Ordered Response Models with Interaction Terms," Econometric Reviews, Taylor & Francis Journals, vol. 30(5), pages 565-576.
- Ai, Chunrong & Norton, Edward C., 2003. "Interaction terms in logit and probit models," Economics Letters, Elsevier, vol. 80(1), pages 123-129, July.
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