Multiple dummies in regression

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margarita
Posts: 3
Joined: Tue Sep 08, 2009 1:30 am

Multiple dummies in regression

Postby margarita » Fri Sep 11, 2009 1:50 am

I have a question how to put many different dummies in a regression. In total I have, next to four 'normal' variables, included 4 subjects of dummies.
1) the kind of facility: senior, second lien, contingent or mezzanine
2) year: 2004 till 2009
3) country: in total 5 countries
4) industry: in total 10 industries.

I know I have to drop from each subject 1 dummy as a refercence dummy so you don't have the dummy variable trap.
But how can you distinguish between these subjects. Now I just put them in Eviews like this:

spread itraxx dealvalue tranchevalue maturity senior sl mezz agri auto commodities construction finanserv healthcare industrial leisure media profserv retail telecom textile transport other france germany italy spain benelux othercountry m n o p q

where m n o p q 2004 till 2008 is.

However, I don't think this is the right manner. Please, can someone tell me because I never can find the solution. Thank you!!

startz
Non-normality and collinearity are NOT problems!
Posts: 3775
Joined: Wed Sep 17, 2008 2:25 pm

Re: Multiple dummies in regression

Postby startz » Fri Sep 11, 2009 7:10 am

You need to either drop one from evey group, and include a constant, or no constant and have one complete set and drop one from all the rest. It looks like you have more than one complete set.

margarita
Posts: 3
Joined: Tue Sep 08, 2009 1:30 am

Re: Multiple dummies in regression

Postby margarita » Fri Sep 11, 2009 8:07 am

I already dropped from every group a dummy (so 1 from tranche, 1 from country, 1 from industry and 1 from year). But what do you mean to put a constant in it? I understand that I have to put a constant in all of the dummy-groups, so a constant in the dummies about tranches, 1 constant in the dummies about countries etc. And how do you put that in eviews as there is already a constant in the beginning of the regression. Sorry, I am an E-views starter so don't get everything. Thank you!!

EViews Gareth
Fe ddaethom, fe welon, fe amcangyfrifon
Posts: 13315
Joined: Tue Sep 16, 2008 5:38 pm

Re: Multiple dummies in regression

Postby EViews Gareth » Fri Sep 11, 2009 8:09 am

I think what Startz meant was that you need to have (only) one constant somewhere in the regression. If you have one in the beginning of the regression, you're fine.

It sounds like you've dropped the dummies correctly and you have a constant, so you're doing it right.
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