# Interpreting the coefficient of a non-binary defined dummy variable

I'm reading an economics paper, where the author is using dummy variables to test for political effects on variables, such as GDP and unemployment. The model is a simple autoregressive model with nothing but a political effect dummy added.

Instead of having a 1 if left-wing party in power, 0 otherwise variable, the author has a variable defined as "takes the value of -1 during the X months of a left-wing administration, 1 during the X months of a right-wing administration and 0 otherwise.

My question is: How would you actually interpret the dummy's coefficient? The paper is very vague and talks about implications but does not refer to coefficients individually much. So if a coefficient on a lagged GDP regression for the dummy is, say -0.76, how would you interpret it?

• This could be a regression model with errors following an ARMA process or a so called ARIMAX model, e.g. $y_t = \phi y_{t-1} + z_t + \beta x_t$ where $x_t$ is the covariate and $z_t$ is white noise. The interpretation of $\beta$ depends on the details, so please clarify. See robjhyndman.com/hyndsight/arimax Aug 29 '16 at 16:35