1.11k likes | 2.37k Views
ECONOMETRICS I. CHAPTER 9 DUMMY VARIABLE REGRESSION MODELS. Textbook: Damodar N. Gujarati (2004) Basic Econometrics , 4th edition, The McGraw-Hill Companies. The types of variables that we have encountered in the preceding chapters were essentially ratio scale.
E N D
ECONOMETRICS I CHAPTER 9 DUMMY VARIABLE REGRESSION MODELS • Textbook: Damodar N. Gujarati (2004) Basic Econometrics, 4th edition, The McGraw-Hill Companies
The types of variables that we have encountered in the preceding chapters were essentially ratio scale. • In this chapter, we consider models that may involve nominal scale variables. Such variables are also known as indicator variables, categorical variables, qualitative variables, or dummy variables.
Caution in the Use of Dummy Variables • If a qualitative variable has m categories, introduce only (m−1) dummy variables. If you do not follow this rule, you will fall into what is called the dummy variable trap, that is, the situation of perfect collinearity or perfect multicollinearity. • The category for which no dummy variable is assigned is known as the base, benchmark, control, comparison, reference, or omitted category. And all comparisons are made in relation to the benchmark category. • The intercept value (β1) represents the mean value of the benchmarkcategory. In Example 9.1, the benchmark category is the Western region.Hence, in the regression (9.2.5) the intercept value of about 26,159 representsthe mean salary of teachers in the Western states.
9.4 REGRESSION WITH A MIXTURE OF QUANTITATIVE AND QUALITATIVE REGRESSORS: THE ANCOVA MODELS
9.4 REGRESSION WITH A MIXTURE OF QUANTITATIVE AND QUALITATIVE REGRESSORS: THE ANCOVA MODELS
9.4 REGRESSION WITH A MIXTURE OF QUANTITATIVE AND QUALITATIVE REGRESSORS: THE ANCOVA MODELS
9.4 REGRESSION WITH A MIXTURE OF QUANTITATIVE AND QUALITATIVE REGRESSORS: THE ANCOVA MODELS