Using Indicator Variables

In this chapter we will explore the use of indicator variables in regression analysis. The discussion will include how to create them, estimate models using them, and how to interpret results that include them in the model. Several applications will be discussed as well. These include using them to create interactions, regional indicators, and to perform Chow tests of regression equivalence across different categories. Finally, their use in linear probability estimation is discussed and their use in evaluating treatment effects and the differences-in-difference estimators that are used in their estimation.

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