1 Lecture 25 (Dec.4) In the last lecture, we covered 1. Log-log specification 2. Interaction term This lecture introduces you to 1. Interaction term.

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Presentation transcript:

1 Lecture 25 (Dec.4) In the last lecture, we covered 1. Log-log specification 2. Interaction term This lecture introduces you to 1. Interaction term

Interactions Between Independent Variables (SW Section 8.3)

(a) Interactions between two binary variables When does this term become positive?

Interpreting the coefficients What is the marginal effect of D 1 : 0→1 if D 2 =0? What is the marginal effect of D 1 : 0→1 if D 2 =1?

Interpreting the coefficients What is the marginal effect of D 1 : 0→1 if D 2 =0? What is the marginal effect of D 1 : 0→1 if D 2 =1?

Interpreting the coefficients What does β 3 represent?

Example: TestScore, STR, English learners a)What is the “Effect” of HiSTR when HiEL = 0 ? b)What is the “Effect” of HiSTR when HiEL = 1 ? c)What do you conclude from the above result?

(b) Interactions between continuous and binary variables When does this term become positive?

Binary-continuous interactions: the two regression lines