Gretl Manual: Gnu Regression, Econometrics and Time-series Library
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# Dummy variables

In a panel study you may wish to construct dummy variables of one or both of the following sorts: (a) dummies as unique identifiers for the cross-sectional units, and (b) dummies as unique identifiers for the time periods. The former may be used to allow the intercept of the regression to differ across the units, the latter to allow the intercept to differ across periods.

Three special functions are available to create such dummies. These are found under the "Data, Add variables" menu in the GUI, or under the `genr` command in script mode or `gretlcli`.

1. "periodic dummies" (script command `genr dummy`). This command creates a set of dummy variables identifying the periods. The variable `dummy_1` will have value 1 in each row corresponding to a period 1 observation, 0 otherwise; `dummy_2` will have value 1 in each row corresponding to a period 2 observation, 0 otherwise; and so on.

2. "unit dummies" (script command `genr unitdum`). This command creates a set of dummy variables identifying the cross-sectional units. The variable `du_1` will have value 1 in each row corresponding to a unit 1 observation, 0 otherwise; `du_2` will have value 1 in each row corresponding to a unit 2 observation, 0 otherwise; and so on.

3. "panel dummies" (script command `genr paneldum`). This creates both period and unit dummy variables. The unit dummies are named `du_1`, `du_2` and so on, while the period dummies are named `dt_1`, `dt_2`, etc.

If a panel data set has the `YEAR` of the observation entered as one of the variables you can create a periodic dummy to pick out a particular year, e.g. `genr dum = (YEAR=1960)`. You can also create periodic dummy variables using the modulus operator, `%`. For instance, to create a dummy with value 1 for the first observation and every thirtieth observation thereafter, 0 otherwise, do

          genr index
          genr dum = ((index-1)%30) = 0

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