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Lecture 22 2010 - V. A DummyVariables B ScalingVariables C...

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1 V. Extensions of Multiple Regression A. Dummy Variables B. Scaling Variables C. Non Linear Models 1. Basic Idea for Estimation . 2. Models that don’t require logs 3. Models that require log transform . C. Non Linear Models 1. Basic idea : Make the model look linear in the parameters. Then estimate using OLS. 2. Models that don’t require a log transform . a. Quadratic form: Y = β 0 + β 1 X + β 2 X 2 + u Examples: Interpretation: wage = - 5.49 + 0.905 ed + 0.309 ex - 0.00352 exsq - 0.726 fe - 0.0903 feex Predictor Coef StDev T P Constant -5.494 1.2140 -4.53 0.000 ed 0.9046 0.0791 11.43 0.000 ex 0.3093 0.0554 5.59 0.000 exsq -0.0035 0.0012 -2.98 0.003 fe -0.7264 0.6725 -1.08 0.281 feex -0.0903 0.0309 -2.93 0.004 S = 4 388 R-Sq = 27 8% R-Sq(adj) = 27 1% 60 50 40 30 20 10 0 12.5 11.5 10.5 9.5 8.5 7.5 6.5 5.5 4.5 ex wagehat1 S = 4.388 R-Sq = 27.8% R-Sq(adj) = 27.1%
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