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Economics 310 . Lecture 11 Dummy variables and Varying Parameters models. Multiple dummy variables. Y. X. More than one Qualitative Variable. Varying Parameter Model. Y. X. First Model. Second Model. Y. X. Testing for Structural Stability Chow-Test.
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Economics 310 Lecture 11 Dummy variables and Varying Parameters models
Y X More than one Qualitative Variable
Y X First Model
Second Model Y X
Dummy variables and heteroscedasticity • To do the Chow test, we must assume that the variance of the disturbance in each regression is same. • This holds for dummy variable test for structural change. We can’t have heteroscedasticity. • Can test this assumption with F-test.
Piecewise Linear Regression Y X X*