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Interactions Between Independent Variables (SW Section 8.3)

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(a) Interactions of two binary vars

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Interpreting the coefficients

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Example

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(b) Interactions of continuous and binary variables

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Binary-continuous interactions: the two regression lines

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Example: TestScore, STR, and HiEL (=1 if PctEL > 10)

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Testing Hypotheses about Interaction Effects

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(c) Interactions of continuous vars

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Example: TestScore, STR, PctEL

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Testing Hypotheses about Interaction Effects

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Application: Nonlinear Effects on Test Scores of the Student-Teacher Ratio (SW Section 8.4)

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1. Are there different effects for different STR levels?

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2. Are there interactions between PctEL and STR?

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What is a good “base” specification?

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Tests of joint hypotheses:

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Interpreting the regression functions via plots:

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Comparing the regressions with interactions:

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Application: Berg Dale & Krueger (QJE, 2002)

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Application: Berg Dale & Krueger (QJE, 2002)

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Application: Berg Dale & Krueger (QJE, 2002)

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Application: Berg Dale & Krueger (QJE, 2002)