# How to use elasticity coefficient obtained from a log-log model

*From*: RD <rahul.dodhia@xxxxxxxxx>*Date*: Wed, 2 Apr 2008 08:28:30 -0700 (PDT)

Dear Colleagues,

I have a rather trivial but vexing problem... I am having trouble

trying to interpret the results from a log-log regression. The

equation was

Log(Y) ~ b0 + b1Log(X) + a1A1 + a2A2 + a3A3 ...

where the Ai are covariates and b1 is the coefficient of interest, and

came out to 0.54. All the data was measured monthly. I took the

coefficient b1 to mean that a 1% change in X would result in 0.54%

change in Y.

When I summarize the data X and Y by years, I see the following

pattern, where the columns are years 1-4.

X: 100.0, 105.0, 111.3, 113.5

Y: 80, 96.0, 111.4, 211.6

% change in X from year to year: 5%, 6%, 2%

% change in Y from year to year: 20%, 16%, 9%

For year 5 then, how would I use my coefficient b1 to predict the %

change in Y if X were to grow by a specific value, say 1% or -1%? Am

I wrong in taking the coefficient calculated on monthly data and

applying it to annual data?

Thanks.

RD

.

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