# 4-1-09 - Economic Statistics Class Notes Dummy Variables...

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Economic Statistics – Class Notes – 4/1/09 Dummy Variables Two kinds: o Intercept dummy variable o Slope dummy variable Leads to an “X”% change in More on Dummy Variables: The slope dummy variable – use to evaluate the effect of a qualitative characteristic on a slope coefficient for some variable Procedure: o Separate the desired independent variable into distinct subgroups associated with the desired characteristics Example: - Assumption – I believe that GDP affects consumption in a different manner when Clinton was president compared to when Bush was president. o Clinton – peacetime expansion o Bush – wartime expansion o Technically doing a multiple regression (another variable), but in this context, it’s just one variable (which can be split into two variables) 1. Model without slope dummy variable: a. (See handwritten notes, part 1a ) b. Bush and Clinton were separated into different periods We will not have to do the calculations from the worksheet being handed in today on the

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4-1-09 - Economic Statistics Class Notes Dummy Variables...

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