3.3 Log-linear model: logYi = α + βXi + εi
In the log-linear model, the literal interpretation of the estimated coefficient βˆ is that a one-unit
increase in X will produce an expected increase in log Y of βˆ units. In terms of Y itself, this means
that the expected value of Y is multiplied by e
βˆ
. So in terms of effects of changes in X on Y
(unlogged):
• Each 1-unit increase in X multiplies the expected value of Y by e
βˆ
.
• To compute the effects on Y of another change in X than an increase of one unit, call this
change c, we need to include c in the exponent. The effect of a c-unit increase in X is to
multiply the expected value of Y by e
cβˆ
. So the effect for a 5-unit increase in X would be e
5βˆ
.
• For small values of βˆ, approximately e
βˆ ≈ 1+βˆ. We can use this for the following approximation
for a quick interpretation of the coefficients: 100 · βˆ is the expected percentage change
in Y for a unit increase in X. For instance for βˆ = .06, e
.06 ≈ 1.06, so a 1-unit change in X
corresponds to (approximately) an expected increase in Y of 6%.