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Applied Econometrics 5
Applied Econometrics 5
5.1 Dummy Explanatory Variables in Regression 5.1 Dummy Explanatory Variables in Regression
Model Model
Variables that assume such 0 and 1 values are called
dummy variables.
Such variables are thus essentially a device to classify
data into mutually exclusive categories such as male or
female.
Dummy variables can be incorporated in regression
models just as easily as quantitative variables.
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5.1 Dummy Explanatory Variables in Regression 5.1 Dummy Explanatory Variables in Regression
Model Model
5.1 Dummy Explanatory Variables in Regression 5.1 Dummy Explanatory Variables in Regression
Model Model
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5.1 Dummy Explanatory Variables in Regression 5.1 Dummy Explanatory Variables in Regression
Model Model
Caution in the Use of Dummy Variables 5.1 Dummy Explanatory Variables in Regression Model
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5.1 Dummy Explanatory Variables in Regression Model 5.1 Dummy Explanatory Variables in Regression Model
5.2 Use of Dummy variables in Seasonal analysis 5.2 Use of Dummy variables in Seasonal analysis
Example.
Many time series variables exhibit seasonal patterns. To illustrate the use of dummy variables in seasonality, we will consider the
Example: average number residential house at Bahir Dar City which have been sold over five
Years (2016-2020) based on quarterly data.
Sales of department stores at Christmas and other major holiday times.
prices of crops right after harvesting season.
Often, it is desirable to remove the seasonal factor, or component, from a
time series so that one can concentrate on the other components, such as
the trend.
The process of removing the seasonal component from a time series is
known as deseasonalization or seasonal adjustment, and the time
series thus obtained is called the deseasonalized, or seasonally
adjusted, time series.
One method of deseasonalizing a time series is the method of dummy Is there statistically significant difference in terms of he number of houses sold over
variables. various seasons (quarters)?
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It indicates that the number of houses sold in the second and fourth quarter are
not significantly different from the number of houses sold at the first quarter.
But, the number of houses sold in the third quarter is significantly different from
the number of houses sold at the first quarter.
The number of houses sold in the second season is grater than the number of
houses sold at the first quarter by 630 houses, on average.