+ Reply to Thread
Results 1 to 2 of 2

Thread: Interpreting LOG-LINEAR(ratio) Model

  1. #1
    Points: 4, Level: 1
    Level completed: 7%, Points required for next Level: 46

    Thanked 0 Times in 0 Posts

    Interpreting LOG-LINEAR(ratio) Model


    I ve a linear regression model. The dependent variable is log transformed ln_EBIT (EBIT is in Million EUR). The independent variable is a ratio between RD / Sales (both in million EUR).
    The Coefficient is around -2,5.

    If we change RD/SALES by 1 (unit), wed expect EBIT to change by -2,5% or -250% percent?

    Is the effect now -2,5% or -250%? Im not quite sure if I have to multiple the coefficient with 100 because it is already a ratio?

    Thanks in Advance,

  2. #2
    Omega Contributor
    Points: 39,022, Level: 100
    Level completed: 0%, Points required for next Level: 0
    hlsmith's Avatar
    Not Ames, IA
    Thanked 1,192 Times in 1,153 Posts

    Re: Interpreting LOG-LINEAR(ratio) Model

    My old notes say the following:

    A one-unit change in X1 is associated with a (eB1 – 1) * 100 percentage change in Y,

    this is approximately equal to 100(B1): If, -0.1 < β1 < 0.1, 0.1 is a rule of thumb.

    So if I am correct, which seem to be quite a bit off from -250, I believe the *100 is a generalization, then for a ratio change of 1 you would have a -92% change in Y. Now the next question is, that I think Y is now on the geometric mean scale so, perhaps the results is:

    For a 1 unit change in X1, you would expect a 92% decrease in the median of Y. Whew, not as clear as we usually think if I did that right.
    Stop cowardice, ban guns!

+ Reply to Thread


Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts

Advertise on Talk Stats