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Interpreting interaction terms in linear and non-linear models: A cautionary tale

Andreas Drichoutis ()

MPRA Paper from University Library of Munich, Germany

Abstract: Interaction terms are often misinterpreted in the empirical economics literature by assuming that the coefficient of interest represents unconditional marginal changes. I present the correct way to estimate conditional marginal changes in a series of non-linear models including (ordered) logit/probit regressions, censored and truncated regressions. The linear regression model is used as the benchmark case.

Keywords: interaction terms; ordered probit; ordered logit; truncated regression; censored regression; nonlinear models (search for similar items in EconPapers)
JEL-codes: C51 C12 C24 C25 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm
Date: 2011-07
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