Dummy variables vs. category-wise models |
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Authors: | HET Holgersson L Nordström Ö Öner |
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Institution: | 1. Economics, Finance and Statistics, J?nk?ping International Business School, J?nk?ping, Sweden;2. Department of Economics and Statistics, Linnaeus University, V?xj?, Swedenthomas.holgersson@ihh.hj.se |
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Abstract: | Empirical research frequently involves regression analysis with binary categorical variables, which are traditionally handled through dummy explanatory variables. This paper argues that separate category-wise models may provide a more logical and comprehensive tool for analysing data with binary categories. Exploring different aspects of both methods, we contrast the two with a Monte Carlo simulation and an empirical example to provide a practical insight. |
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Keywords: | regression analysis dummy variables group heterogeneity parameter restrictions |
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