Ch7-2 - Using Dummy Variables Chapter 7 Specification:...

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Unformatted text preview: Using Dummy Variables Chapter 7 Specification: Choosing a Functional Form Lecture 2 Masao Ogaki Department of Economics, Ohio State University November 13, 2007 Masao Ogaki Department of Economics, Ohio State University Chapter 7 Specification: Choosing a Functional Form Lecture 2 Using Dummy Variables Using Dummy Variables I numerical or quantitative explanatory variables I qualitative explanatory variables. Examples: education (college graduates, high school graduates, and non-high school graduates, etc.) sex, race, religion, and nationality are qualitative variables. These qualitative variables are represented by dummy variables . A dummy variable takes on the value of 0 or 1, depending on a qualitative attribute such as gender. Masao Ogaki Department of Economics, Ohio State University Chapter 7 Specification: Choosing a Functional Form Lecture 2 Using Dummy Variables Consider the following example, in which the only explanatory variable in the two-variable regression is a dummy variable: Y i = β + β 1 D i + i (1) Y i : the annual starting salary D i = 1 if college graduate otherwise (i.e., noncollege graduate) Masao Ogaki Department of Economics, Ohio State University Chapter 7 Specification: Choosing a Functional Form Lecture 2 Using Dummy Variables We obtain from Regression (1) the following for the mean...
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This note was uploaded on 07/17/2008 for the course ECON 444 taught by Professor Ogaki during the Fall '07 term at Ohio State.

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Ch7-2 - Using Dummy Variables Chapter 7 Specification:...

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