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Dummy-Variable Regression

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7Dummy-VariableRegressionOne of the serious limitations of multiple- Regression analysis, as presented in Chapters 5and 6, is that it accommodates only quantitative response and explanatory variables. In thischapter and the next, I will explain how qualitative explanatory variables, calledfactors, can beincorporated into a linear current chapter begins with an explanation of how adummy-variable regressorcan becoded to represent adichotomous( , two-category) factor. I proceed to show how a set of dummyregressors can be employed to represent apolytomous(many-category) factor.

it into the regression equation—say, by taking logs—then there would be a distinction between the explanatory variable (education) and the regressor (log education). In subsequent sections of this chapter, it will transpire that an explanatory variable can give rise to several regressors and

  Regression, Logs

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