Econometrics - Nonlinear Models

5 important questions on Econometrics - Nonlinear Models

What are binary response models?

Models with outcome of 0/1
  1. Logit model
  2. Probit model

What is a probit model?

Model uses standard normal distribution function

What is the rule of thumb probit to logit?

1.6Bprobit = Blogit
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What is a Tobit model?

Used when y cannot be lower or exceed a certain value.
y=max(y*,0)

Disadvantages of nonlinear models?

  1. Difficult to estimate
  2. interpretation of coefficients not straightforward:
  • only make sense of sign of each coefficient
  • for some models look at marginal effects

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