LN+6+Interactive+Terms

# LN+6+Interactive+Terms - Empirical Methods II(API-202A...

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Empirical Methods II (API-202A) Kennedy School of Government Harvard University 1 Lecture Notes 6 Non-linear Relationships – Interactive Terms Non-linear regression can take on more than one form: 1. Logs and Quadratics (last class) The predicted change in Y associated with a change in X 1 depends on the value of X 1 2. Interaction between two variables – i.e. X1*X2 (dummies and/or non-dummies) The predicted change in Y associated with a change in X 1 depends on the value of another variable X 2 Example of dependence on another variable : Does the data suggest that the relationship between wages and years of experience is the same for men and women? Wages = 0 ˆ 1 ˆ Female + 2 ˆ Education + ˆ . reg wage female educ, robust Regression with robust standard errors Number of obs = 526 R-squared = 0.2588 ------------------------------------------------------------------------------ | Robust wage | Coef. Std. Err. t P>|t| [95% Conf. Interval] -------------+---------------------------------------------------------------- female | -2.273362 .2702033 -8.41 0.000 -2.804179 -1.742545 educ | .5064521 .0598956 8.46 0.000 .3887867 .6241176 _cons | .6228168 .7286843 0.85 0.393 -.8086909 2.054324 ------------------------------------------------------------------------------ Note: To simplify the presentation we will use wages and not Log (wages) as LHS variable. QUESTION #1 : Can we answer our question with this regression?

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