0
$\begingroup$

Imagine we have a DGP such that

$$ \Delta \ln y_{it}=\beta\times\Delta\ln x_{it} $$

How do you interpret the $\beta$ coefficient, since it is expressed in an approximation of a growth rate?

Thanks for your help

$\endgroup$
1
$\begingroup$

Your equation can be re-written (through the properties of logs) as:

$$ \ln(y_{it} / y_{it-1}) = \beta\ln(x_{it} / x_{it-1}) $$

So it becomes a log-log regression equation. In this form, it means that if we change the ratio of $x_{it}$ to $x_{it-1}$ by one percent, the ratio of $y_{it}$ to $y_{it-1}$ will change by $\beta$ percent, on average. In other words, if $x_{i}$ grows by one percent between two periods, $y_{i}$ is expected to grow by $\beta$ percent in that same time span.

| improve this answer | |
$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.