Answer to Question #225577 in Economics for Ota

Question

Impact of Explanatory variable, size of impact and sign of impact?

Answer 1

Many explanatory variables have numerical values—inches, pounds, and dollars. However other explanatory variables are categorical—male or female, white or nonwhite, Republican or Democrat. We can handle categorical variables by using 0–1 dummy variables, variables whose values are 0 or 1, depending on whether or not a certain characteristic is true.