Nonlinear
Regression III (cont’)
Assessing Regression Studies I
(Fall 2010)
Lecture 12
Prof: Seyhan Erden Arkonac, PhD
Solution to Problem Set 4 is posted.
Problem Set 5 is due at the beginning of class
on
Tuesday October 19
th
.
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(b) Interactions between continuous
and binary variables
Y
i
=
0
+
1
D
i
+
2
X
i
+
u
i
D
i
is binary,
X
is continuous
As specified above, the effect on
Y
of
X
(holding constant
D
) =
2
, which does not depend on
D
To allow the effect of
X
to depend on
D
, include the
“interaction term”
D
i
X
i
as a regressor:
Y
i
=
0
+
1
D
i
+
2
X
i
+
3
(
D
i
X
i
) +
u
i