<p>Because <a href="https://www.statisticshowto.com/moderating-variable/" rel="nofollow noreferrer">moderator variables</a> are  by definition variables that affect the strength of the relationship between one variable and another variable, and that is exactly what interaction effect does (it allows <span class="math-container">$P$</span> to have different effect depending on whether <span class="math-container">$D=1$</span> or <span class="math-container">$D=0$</span>).</p>
<p>This is actually not terminology used widely in economics, but it is used widely in <a href="https://www.psychologyinaction.org/psychology-in-action-1/2015/02/06/mediating-and-moderating-variables-explained" rel="nofollow noreferrer">psychology</a> and some other fields (although I seen it used in few behavioral economics papers). In economics, outside few specific subfields people usually call it interaction term.</p>

CC BY-SA 4.0
2021-07-29T13:44:49.270Z
2021-07-29T14:03:13.677Z
2021-07-29T14:03:13.677Z
1muflon1
<p>I have an interactive regresison model as below:</p>
<p><span class="math-container">$Y_{i,t} = \beta_0 + \beta_1$$D_i$</span> + <span class="math-container">$\beta_2$$P_{i,t}$</span> + <span class="math-container">$\beta_3$</span>(<span class="math-container">$D_i$$P_{i,t}$</span>) + other covariates + error terms</p>
<p>In this model, why <span class="math-container">$D_i$</span> is called as <strong>the moderator for the relationship between <span class="math-container">$P_{i,t}$</span> and <span class="math-container">$Y_{i,t}$</span></strong></p>

<econometrics>
What is the "moderator for the relationship" in interactive regression model?
Phil Nguyen
# What is the "moderator for the relationship" in interactive regression model?

(Asked by: username_0 on 2021-07-29)

I have an interactive regresison model as below:

$Y\_{i,t} = \beta\_0 + \beta\_1$$D\_i$ + $\beta\_2$$P\_{i,t}$ + $\beta\_3$($D\_i$$P\_{i,t}$) + other covariates + error terms

In this model, why $D\_i$ is called as **the moderator for the relationship between $P\_{i,t}$ and $Y\_{i,t}$**

**Tags:** econometrics

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## 1 answers

### Answer by username_1 on 2021-07-29. Score: 2 | Accepted answer

Because [moderator variables](https://www.statisticshowto.com/moderating-variable/) are by definition variables that affect the strength of the relationship between one variable and another variable, and that is exactly what interaction effect does (it allows $P$ to have different effect depending on whether $D=1$ or $D=0$).

This is actually not terminology used widely in economics, but it is used widely in [psychology](https://www.psychologyinaction.org/psychology-in-action-1/2015/02/06/mediating-and-moderating-variables-explained) and some other fields (although I seen it used in few behavioral economics papers). In economics, outside few specific subfields people usually call it interaction term.


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