Up until now, we have seen, only quantitative variables in regression models. What happens if qualitative variable is present? For example, if ‘gender’ is one of the independent variable in regression model, what number will you give to ‘gender’, dont know! ‘Gender’ is a qualitative variable. Either a person is male or female, ‘a binary choice’. In this case, say a ‘quality’ is that a person is male, so, if a person is male, then you put ‘1’ otherwise 0. Hence, in the column of ‘gender’ you will have series of 0’s and 1’s. Now you will run the regression.
Note that, we are dealing with cases, where only independent variables are dummy variables. There are cases, where dependent variables can also be dummy variables. Those are called Qualitative dependent variables. That is generally not the part of introductory econometrics course at the undergraduate level.
In these videos, we talk about, what are dummy variables? How do you interpret these variables in a regression model? What is dummy variable trap?
Dummy Variables Introduction
Dummy variable example 1
Dummy Variables example 2
Dummy Variable Trap