[经济学]计量经济学基础第7章课件.ppt

Chapter 7 Using Indicator Variables Walter R. Paczkowski Rutgers University 7.1 Indicator Variables 7.2 Applying Indicator Variables 7.3 Log-linear Models 7.4 The Linear Probability Model 7.5 Treatment Effects Chapter Contents Economists develop and evaluate theories about economic behavior Hypothesis testing procedures are used to test these theories Theories economists develop sometimes provide nonsample information that can be used along with the sample information to estimate the parameters of a regression model A procedure that combines these two types of information is called restricted least squares 6.1 Joint Hypothesis Testing Indicator variables allow us to construct models in which some or all regression model parameters, including the intercept, change for some observations in the sample 7.1 Indicator Variables Consider a hedonic model to predict the value of a house as a function of its characteristics: size Location number of bedrooms age 7.1 Indicator Variables Consider the square footage at first: β2 is the value of an additional square foot of living area and β1 is the value of the land alone 7.1 Indicator Variables Eq. 7.1 How do we account for location, which is a qualitative variable? Indicator variables are used to account for qualitative factors in econometric models They are often called dummy, binary or dichotomous variables, because they take just two values, usually one or zero, to indicate the presence or absence of a characteristic or to indicate whether a condition is true or false They are also called dummy variables, to indicate that we are creating a numeric variable for a qualitative, non-numeric characteristic We use the terms indicator variable and dummy variable interchangeably 7.1 Indicator Variables Generally, we define an indicator variable D as: So, to account for location, a qualitative variable, we would have: 7.1 Indicator Variables Eq. 7.2 Adding our indicator variable to our model: If our model is correctly specified,