Lab 9 Exercises - Dummy Variables and Data Manipulations

Lab 9 Exercises - Dummy Variables and Data Manipulations -...

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Lab 9: Dummy Variables and Data Manipulations Objectives: This lab will introduce you to data manipulations in Minitab , especially the creation of dummy variables and interaction variables . We’ll then use one of the most common data transformations in econometrics – creating natural logarithms of variables. You should recall that we did this using Excel in Lab 7. Data : Same data used last week: ROSES.xls x; or Roses.dat (an ASCII data set). If you saved your Minitab project for Lab 8, you can open Minitab , and then open your Minitab Project. Creating Dummy Variables . 1. Dummy variables are binary variables (they take on only two values) that indicate whether a condition, characteristic, or quality exists for a specific observation. The observation could be a person, a car, or a year and quarter as we’ll analyze here. 2. We could create dummy variables in our Excel file using the “ =If(. .) ” function. Try it. Create a new column in the Excel spreadsheet, call it Q1. Our variable will indicate whether the quarter is quarter 1 or not. The syntax is: =IF(logical_test,[value if true],[value if false] .” For these data, in the first cell, for 1971, quarter 3, the function is: “= IF(B2=1,1,0) ”. This will place a “1” in all cells where the variable quarter = 1, and will return a “0” for all other values of quarter . 3. We can also use Minitab to create dummy variables for us for this exercise. First, load the Roses data. The data are on the server as an ASCII file (we used these in Lab 8). Or, you can copy and paste the data from the Excel spreadsheet. Copy both data and names, but make sure you get the names pasted into the first row in Minitab where the names belong (the cells are shaded beige/gray in the Minitab worksheet). 4. Check the data by calculating descriptive statistics (means, standard deviations, medians, minimums and maximums) for the variables: sales, prose, pcarn, and income . You should observe the same results that we obtained last week. Copy these to a Word file . 5. Next we need to create dummy variables for the different quarters. You could simply type the appropriate dummy variables into the worksheet. But there is an easier way: Let Minitab do it! In the menu under C alc , you will find Make I ndicator Variables… When you ask Minitab to create indicator variables for a variable in your data set, Minitab will check the variable and find out how many different values there are. It only makes sense to create indicator variables for categorical variables (variables with a limited number of discrete values). The variable quarter has 4 different values denoting the quarter of the year. Thus, Minitab will create 4 dummy variables, one for each quarter, of the form: 1; 1, 2, 3, 4 . 0.
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This note was uploaded on 12/08/2011 for the course ECON 312 taught by Professor Daniellass during the Winter '10 term at UMass (Amherst).

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Lab 9 Exercises - Dummy Variables and Data Manipulations -...

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