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st: re: dummy

From   Kit Baum <[email protected]>
To   [email protected]
Subject   st: re: dummy
Date   Sat, 1 Dec 2007 12:07:44 -0500

Linda asked

Can dummy(ies) be used as dependent variable(s)? Please help.

Presuming you mean in a linear regression: yes, that is called a linear probability model. It has obvious flaws: its predictions are not constrained in (0,1) and its errors are heteroskedastic by design (binomial). More commonly, a binomial logit (or logistic regression) model or a binomial probit model is used. See the 'limited dependent variables' chapter in the book cited below or any good econometrics text for discussion of these alternatives (or Wikipedia).

Kit Baum, Boston College Economics and DIW Berlin
An Introduction to Modern Econometrics Using Stata:

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