How to understand these results? The authors describe the +ve coefficient (26.56) as a “decrease.”
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Reference paper Chen, Kaiji, Jue Ren, and Tao Zha. 2018. "The Nexus of Monetary Policy and Shadow Banking in China." American Economic Review, 108 (12): 3891-3936.
Hi,
I do not know the details of the model; however, the important point is that gt-1 is not an independent variable but an intercept value of the model.
The author explains the impact of the decrease in the independent variable. Then, if the sign of the respective coefficient is positive the dependent variable will decrease; if the sign of the respective coefficient is negative the dependent variable will increase. Do not understand based on the sign. Understand base on the relationship (Not on the sign of the coefficient).
Zahra Lashgari Prabath Suranaga Morawakage That's the model. the confusing thing is the sign with the gt-1 coefficient, which is +, but the author is defining it as a decrease in the outcome variable.
Dear Syed M Raza Shah, The author has not clearly defined the model variables. He should have done that. Signs of the model are fine. All can be positive whereas empirical results can be negative. However, the author has interpreted the results correctly from my point of view. The sign is negative means an inverse relationship: When the independent variable decreases by 1 unit, the dependent variable increases by x units vice versa.
Dear Prabath Suranaga Morawakage i agree with your angle, However, the authors describe the +ve coefficient (26.56) as a “decrease.” Which I am trying to understand.
As an independent variable has a +ve coefficient, so can we define it as a decrease in the dependent variable?
Dear Syed M Raza Shah positive Coefficient 25.56 also implies the same. A decrease (fall) in the independent variable results in a decrease (fall) in the dependent variable. Still, the coefficient is positive since the relationship is positive. A positive relationship means the direction of the two variables is same. Both variables decrease together or increase together. That's why ARIX decreases by 25.56% when the money growth falls by 1%, given the coefficient is +25.56.
If the coefficient is negative, dependent and independent variables move in different directions, not in the same direction.
There is no wrong with this interpretation. A +ve sign with a coefficient indicates a positive relationship between two variables (say x & Y), implying that if x increases, Y also increases — and if X decreases, Y also decreases. So, according to the objective of analysis, the author chooses the latter interpretation. However, you can also say that "26.56 percent INCREASE in response to a one-percentage-point RISE in M2 growth.
The same is also visible from the negative coefficient (-37.69), where a "decrease" in independent variable (M2 growth) should "increase" dependent variable (ARIX), and vice versa (inverse relationship due to negative sign).