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st: Re: Question about ln-linear models

From   Maarten Buis <[email protected]>
To   [email protected]
Subject   st: Re: Question about ln-linear models
Date   Fri, 2 Sep 2011 15:31:48 +0200

On Fri, Sep 2, 2011 at 3:22 PM, Mihaylov, Emil  wrote me privately:
> I am STATA user and would like to aks you an econometric question. Thank you very much in advance for your time and help. I really apprecaite it.
> My question is about ln-linear models, and more specifically how to read coefficients in these models. There are obviously two ways to interpter coefficients in ln-linear models and I am a little bit confused which one to use. Some econometric books suggest to read the coefficients in these models as (100*Beta)%. At the same time I have seen also many empirical works where coefficients are interpreted as exp(Beta)-1)*100. I suppose that both ways are correct, they just take a different perspective. Now I am wondering how to interpret the coefficients of my regression. I would apprecaite if you could help me.
> I have the following situation: lnY = lnX1 +…+ Dummy
> My dependent variable is the natural logarithm of the trade between country i and country j and the dummy variable indicates whether the two trading countries share the same origin of the legal system (same origin =1). I have estimated the model using OLS. The coefficient of the dummy variable is 0.85. So, my interpretation is that having the same origin of the legal system, all else being equal, would lead to 85% increase in trade. I am wondering however if this is correct. A friend of mine suggested that I have to read this as exp(0.85)-1)*100%.
> Could you tell me please which of both ways is correct in this situation? Thanks a lot in advance for your help.

Such questions should not be sent to persons privately but to the
statalist as is clearly explained in the Statalist FAQ:

The two types of interpretation you discussed are not the same, they
are appropriate for different models, see e.g.:

-- Maarten

Maarten L. Buis
Institut fuer Soziologie
Universitaet Tuebingen
Wilhelmstrasse 36
72074 Tuebingen

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