1 / 5

CHAPTER

6. x. ECONOMETRICS. x. CHAPTER. x. x. x. Dummy Variable Regression Models. Dummy, or indicator, variables take on values of 0 or 1 to indicate the presence or absence of a quality. They can be included in regressions just like quantitative variables.

nicodemus-illias
Download Presentation

CHAPTER

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. 6 x ECONOMETRICS x CHAPTER x x x Dummy Variable Regression Models Dummy, or indicator, variables take on values of 0 or 1 to indicate the presence or absence of a quality. They can be included in regressions just like quantitative variables. Yi= B1 + B2 Di + B3Xi + ui Di = 1 for female 0 for male Di = 1 for prior to 2001 0 for 2001 and later OR

  2. A Dummy Variable Indicates Change in Intercept 120 Y 100 80 60 40 20 20 40 60 80 100 120 X Yi= 60 + 30 Di - 0.4 Xi + ui If D = 0 Y = 60 + 30 D - 0.4 X Y = 60 – 0.4 X D = 1 If D = 1 Y = 60 + 30 D - 0.4 X Y = 90 - 0.4 X D = 0 B2=30 is the differential intercept coefficient.

  3. A Dummy Variable Can Allow for Change in Slope, Too 120 Y 100 80 60 40 20 20 40 60 80 100 120 X Yi= 60 + 30 Di– 0.4 Xi + 0.3(DiXi) + ui If D = 0 Y = 60 + 30 D – 0.4 X + 0.3 DX Y = 60 – 0.4 X D = 1 If D = 1 Y = 60 + 30 D – 0.4 X + 0.3 DX Y = 60 – 0.1 X D = 0 B4=0.3 is the differential slope coefficient.

  4. Variables with More than Two Classes Don’t allow the dummy variable to take on multiple values: Yi= B1 + B2 Di + B3Xi + ui Di = 0 for first quarter 2 for third quarter 1 for second quarter 3 for fourth quarter  This assumes a pattern in the effect that might not exist. Instead, use several indicator variables. Yi= B1+ B2 D2i + B3D3i + B4D4i + B5Xi + ui  D2i = 1 if 2nd qrt 0 otherwise D3i = 1 if 3rd qrt 0 otherwise D4i = 1 for 4th qrt 0 otherwise

More Related