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I have the following regression, where I regress the consumption of gasoline on logarithmic variables.

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Meaning of the variables is: pnc=price index for cars pg=price index for gasoline, puc=price index for old cars y=per capita disposable income, ppt=price index for public transportation pd=price index for consumer durables, d79=time dummy for the OPEC oil shock, 1 for the post-1979 period and 0 otherwise

I do not understand how to interpret d79lnpuc variable. Why after the 1979 crisis an increase in the price of old cars has a positive relation to the consumption of gasoline? I think that maybe people started to buy old cars, because of the increase in the price of gasoline. However, I do not see any connection with that and d79lnpuc having a positive coefficient.

I will be thankful for any suggestions and hints.

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1 Answer 1

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The coefficient for lnpuc is the effect of lnpuc when d79 = 0. This coefficient is -0.324. The coefficient of d79lnpuc measures the change in the effect of lnpus when d79 = 1, thus the effect of lnpuc when d79 = 1 is -0.324 + 0.274 < 0.

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  • $\begingroup$ Yes, I understand that. I do not understand why it has a positive coefficient and how to interpret that. $\endgroup$
    – John Doe
    Nov 27, 2021 at 21:00
  • $\begingroup$ It means that when d79 the effect is not as negative compared to when d79 = 0. $\endgroup$ Nov 28, 2021 at 12:35

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