Answer to Question #232642 in Economics for KAT

Question

What are dummy variables? What is their importance in regressing analysis?

Answer 1

A dummy variable is a numerical variable used in regression analysis to represent subgroups of the sample in your study.

Dummy variables are useful because they enable us to use a single regression equation to represent multiple groups. Theу act like 'switches' that turn various parameters on and off in an equation.