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Dummy Variables and Varying Parameters Models in Economic Analysis

Explore the application of dummy variables and varying parameters models in economic analysis. Learn about multiple dummy variables, qualitative variables, varying parameter models, testing for structural stability with Chow test, and dealing with heteroscedasticity. Dive into piecewise linear regression analysis and interpretation of coefficients in semi-log regression.

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Dummy Variables and Varying Parameters Models in Economic Analysis

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  1. Economics 310 Lecture 11 Dummy variables and Varying Parameters models

  2. Multiple dummy variables

  3. Y X More than one Qualitative Variable

  4. Varying Parameter Model

  5. Y X First Model

  6. Second Model Y X

  7. Testing for Structural StabilityChow-Test

  8. Testing for Structural StabilityDummy Variable-Test

  9. 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.

  10. Piecewise Linear Regression Y X X*

  11. Piecewise Linear Regression

  12. Sample data for Piecewise regression

  13. Results of Piecewise Regression

  14. Interpretation of dummy variable in semi-log regression

  15. Semi-log Example

  16. Interpretation of Coefficients

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