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Lecture Advanced Econometrics (Part II) - Chapter 6: Dummy varialable

Lecture "Advanced Econometrics (Part II) - Chapter 6: Dummy varialable" presentation of content: Intercept dummy, intercept dummies with interactions, seasonal efects, pooled data, test for structure break, differences in differences. | Advanced Econometrics Chapter 6 Dummy Variables Chapter 6 DUMMY VARIABLES r Hedonic model of housing prices Pi prices of ith house. Si size square of feet . 1 if ith house has air conditioning 0 otherwise ACi I. INTERCEPT DUMMY ị Regression Model Ln Pi 3 33S 33 ACi S 3 relative change in price 2 Unit change in square footage P2 0.05 Each extra square foot adds 5 to value of house. 33 0.12 The AC adds 12 to price of house. o If no AC ACị 0 intercept 31 reference group . o If no AC ACị 1 intercept 31 33 Nam T. Hoang University of New England - Australia 1 University of Economics - HCMC - Vietnam Advanced Econometrics Chapter 6 Dummy Variables 4- Let AC ị 1 if ith house has no air conditioning 0 otherwise Ln p P1 P2 Si P-3 AC P4 NAC 8 1 S1 0 1 1 S 2 10 1 S100 0 1 Dummy variable trap AC NACị 1 alway. -I- Let Bị 1 if ith house is brick 0 if not C 1 if ith house is cement block 0 if not W 1 if ith house is wood 0 if not Dummy variable trap no reference group. Ln p P1 p Sị p-3 AC p. B pC 8 o Reference group all dummies 0 houses of wood without AC intercept p1. o Houses of wood with AC intercept p1 P3. o Houses of cement without AC intercept y p5 o Houses of cement with AC intercept P p3 p5 II. INTERCEPT DUMMIES WITH INTERACTIONS 1 if ith house is cement block AC 0 if not Let CAC C X AC Ln p P1 p S p ACị P4 Bị P5C P6C AC 8 Nam T. Hoang University of New England - Australia 2 University of Economics - HCMC - Vietnam Advanced Econometrics Chapter 6 Dummy Variables Ln p P1 P2 S P3 AC P4 B P5 P6 AC C S o Houses of wood with AC intercept p1 p3. o Houses of cement with AC intercept p1 p3 p5 p6 o Houses of cement without AC intercept p1 p5 4- Let Di distance to a waste site. r 1if no AC AC D D X AC 4 if AC Ln p P1 P Si P AC P.D P AC D S o Reference group Ln p P1 P2S P3AC S o Non-reference group with AC Ln p P1 P2 S P3 AC P4 D P5 D S Ln pi P1 P2S P3AC P4 P5 D S 4- Not only change in the intercept but also change in the slope. Ln WAGE P1 P2 EDU P3 AGE S Ln WAGE P1 P2EDU P3 AGE .