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Chapter 7

Nonlinear Relationships. Chapter 7. Prepared by Vera Tabakova, East Carolina University. Chapter 7: Nonlinear Relationships. 7.1 Polynomials 7.2 Dummy Variables 7.3 Applying Dummy Variables 7.4 Interactions Between Continuous Variables 7.5 Log-Linear Models. 7.1 Polynomials.

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Chapter 7

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  1. Nonlinear Relationships Chapter 7 Prepared by Vera Tabakova, East Carolina University

  2. Chapter 7: Nonlinear Relationships • 7.1 Polynomials • 7.2 Dummy Variables • 7.3 Applying Dummy Variables • 7.4 Interactions Between Continuous Variables • 7.5 Log-Linear Models Principles of Econometrics, 3rd Edition

  3. 7.1 Polynomials 7.1.1 Cost and Product Curves Figure 7.1 (a) Total cost curve and (b) total product curve Principles of Econometrics, 3rd Edition

  4. 7.1 Polynomials Figure 7.2 Average and marginal (a) cost curves and (b) product curves Principles of Econometrics, 3rd Edition

  5. 7.1 Polynomials Principles of Econometrics, 3rd Edition

  6. 7.1.2 A Wage Equation If Deriv < 0 => Exper < -β3/2β4 , or Exper> β3/2β4 . Principles of Econometrics, 3rd Edition

  7. 7.1.2 A Wage Equation Principles of Econometrics, 3rd Edition

  8. 7.1.2 A Wage Equation Where 33.47 is the ‘turning point’ Principles of Econometrics, 3rd Edition

  9. 7.2 Dummy Variables Principles of Econometrics, 3rd Edition

  10. 7.2.1 Intercept Dummy Variables Principles of Econometrics, 3rd Edition

  11. 7.2.1 Intercept Dummy Variables Figure 7.3 An intercept dummy variable Principles of Econometrics, 3rd Edition

  12. 7.2.1a Choosing The Reference Group Principles of Econometrics, 3rd Edition

  13. 7.2.2 Slope Dummy Variables Principles of Econometrics, 3rd Edition

  14. 7.2.2 Slope Dummy Variables Figure 7.4 (a) A slope dummy variable. (b) A slope and intercept dummy variable Principles of Econometrics, 3rd Edition

  15. 7.2.2 Slope Dummy Variables Principles of Econometrics, 3rd Edition

  16. 7.2.3 An Example: The University Effect on House Prices Principles of Econometrics, 3rd Edition

  17. 7.2.3 An Example: The University Effect on House Prices Principles of Econometrics, 3rd Edition

  18. 7.2.3 An Example: The University Effect on House Prices Principles of Econometrics, 3rd Edition

  19. 7.2.3 An Example: The University Effect on House Prices Principles of Econometrics, 3rd Edition

  20. 7.2.3 An Example: The University Effect on House Prices Based on these regression results, we estimate • the location premium, for lots near the university, to be $27,453 • the price per square foot to be $89.12 for houses near the university, and $76.12 for houses in other areas. • that houses depreciate $190.10 per year • that a pool increases the value of a home by $4377.20 • that a fireplace increases the value of a home by $1649.20 Principles of Econometrics, 3rd Edition

  21. 7.3 Applying dummy variables • 7.3.1 Interactions Between Qualitative Factors Principles of Econometrics, 3rd Edition

  22. 7.3.1 Interactions Between Qualitative Factors Principles of Econometrics, 3rd Edition

  23. 7.3.1 Interactions Between Qualitative Factors Principles of Econometrics, 3rd Edition

  24. 7.3.2 Qualitative Factors with Several Categories Principles of Econometrics, 3rd Edition

  25. 7.3.2 Qualitative Factors with Several Categories Principles of Econometrics, 3rd Edition

  26. 7.3.3 Testing the Equivalence of Two Regressions Principles of Econometrics, 3rd Edition

  27. 7.3.3 Testing the Equivalence of Two Regressions Principles of Econometrics, 3rd Edition

  28. 7.3.3 Testing the Equivalence of Two Regressions Principles of Econometrics, 3rd Edition

  29. 7.3.3 Testing the Equivalence of Two Regressions Principles of Econometrics, 3rd Edition

  30. 7.3.4 Controlling for Time 7.3.4a Seasonal Dummies 7.3.4b Annual Dummies 7.3.4c Regime Effects Principles of Econometrics, 3rd Edition

  31. 7.4 Interactions Between Continuous Variables Principles of Econometrics, 3rd Edition

  32. 7.4 Interactions Between Continuous Variables Principles of Econometrics, 3rd Edition

  33. 7.4 Interactions Between Continuous Variables Principles of Econometrics, 3rd Edition

  34. 7.4 Interactions Between Continuous Variables Principles of Econometrics, 3rd Edition

  35. 7.5 Log-Linear models 7.5.1 Dummy Variables Principles of Econometrics, 3rd Edition

  36. 7.5.1a A Rough Calculation Principles of Econometrics, 3rd Edition

  37. 7.5.1b An Exact Calculation Principles of Econometrics, 3rd Edition

  38. 7.5.2 Interaction and Quadratic Terms Principles of Econometrics, 3rd Edition

  39. 7.5.2 Interaction and Quadratic Terms Principles of Econometrics, 3rd Edition

  40. Keywords • annual dummy variables • binary variable • Chow test • collinearity • dichotomous variable • dummy variable • dummy variable trap • exact collinearity • hedonic model • interaction variable • intercept dummy variable • log-linear models • nonlinear relationship • polynomial • reference group • regional dummy variable • seasonal dummy variables • slope dummy variable Principles of Econometrics, 3rd Edition

  41. Chapter 7 Appendix • Appendix 7 Details of log-linear model interpretation Principles of Econometrics, 3rd Edition

  42. Appendix 7 Details of log-linear model interpretation Principles of Econometrics, 3rd Edition

  43. Appendix 7 Details of log-linear model interpretation Principles of Econometrics, 3rd Edition

  44. Appendix 7 Details of log-linear model interpretation Principles of Econometrics, 3rd Edition

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