Dmmy

1. EViews Training
Dummy Variables
Note: Data and workfiles for this tutorial are provided in:
 Data: Data.xlsx
 Results: Results.wf1
 Practice Workfile: Data.wf1

2. Data and Workfile Documentation
• Data.wf1 and Data.xlsx consist of two pages (tabs) with the following data:
• Workfile Page: Dated (Data.xlsx tab Dated): daily, from Jan 1, 1950 – August 2, 2012
 Volume – S&P 500 volume (source: St. Louis Federal Reserve Bank, FRED Database)
 Volume1- percent change in S&P500 Volume
 Return – S&P 500 return (source: St. Louis Federal Reserve Bank, FRED Database)
• Workfile Page: Cross_Section (Data.xlsx tab Cross_Section) data on 526 individuals
 wage – wage per hour (in dollars)
 educ – number of years of education
 exper – experience, number of years
 female – dummy variable, equal to 1 if female, 0 otherwise
 married – dummy variable, equal to 1 if married, 0 otherwise
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* These data are from Wooldridge, Introductory Econometrics (4th Edition).

3. Data Series Objects: Series and Groups
• It is fairly easy to create dummy variables in EViews by using sample
commands or a number of EViews functions:
smpl
@recode
@date
@expand
• This tutorial demonstrates how to create:
 Dummy Variables using samples
 Dummy Variables using the @recode function
 Date Dummy Variables using the @date function
 Categorical Dummy Variables using the @expand function
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4. Creating Dummy Variables
Using Samples

5. Creating Dummy Variables Using Samples:
Example 1
• The easiest way to create dummy variables in EViews is by using samples
(smpl command).
• Let’s illustrate a few examples using the Dated page in Workfile Data.wf1.
• Suppose you would like to create a dummy variable equal to 1, if return>0.2,
and 0 otherwise.
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Dummies with samples: Example 1
1. Open Data.wf1 workfile. Click on the
Dated page.
2. Type in the command window:
smpl if return>0.2
series dummy1=1
smpl if return<=0.2
series dummy1=0
3. Press Enter after each command line
entry.

6. Creating Dummy Variables Using Samples:
Example 1 (cont’d)
• The original series (return) and the new dummy variable are both shown here.
Original series Dummy Variable
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7. Creating Dummy Variables Using Samples:
Example 2
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• Now suppose you would like to create a dummy variable equal to 1, if
return>0.3, or return<=-0.3, and 0 otherwise.
Dummies with samples: Example 2
1. Click on Dated workfile page. Type in the
command window:
smpl if return>0.3 or return<=-0.3
series dummy2=1
smpl if return>-0.3 and return<0.3
series dummy2=0
2. Press Enter after each command line.
Original Series Dummy Variable

8. Creating Dummy Variables
Using @recode function

9. Creating Dummy Variables Using @recode
• Another way to create dummy variables in EViews is by using @recode
function.
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Function Description
@recode(s,x,y) Returns x if condition s is true; otherwise it returns y

10. Creating Dummy Variables Using @recode:
Example 1
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• Suppose you wish to create a dummy equal to 1 if return<=0.2, 0 otherwise.
Dummies with @recode: Example 1
1. Click on the Dated workfile page. Let’s first set the
sample equal to the entire range by typing in the
command window smpl @all. Now, type in the
command window:
series dummy4=@recode(return<=0.2,1,0)
2. Press Enter.
Alternatively:
1. Click on the top menu bar of and select Quick
→ Generate Series.
2. The Generate Series by Equation dialog box
opens up. Specify here your dummy expression
(as shown here).
3. Click OK.

11. Creating Dummy Variables Using @recode:
Example 1 (cont’d)
• The original series (return) and the new dummy variable are both shown here.
Original series Dummy Variable
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12. Creating Dummy Variables Using @recode:
Example 2
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• Create a dummy variable equal to 1 if -0.2<return<1, 0 otherwise.
Dummies with @recode: Example 2
1. Click on Dated workfile page. Type in the command window:
series dummy5=@recode(return>-0.2 and return<1,1,0)
2. Press Enter.
Original Series Dummy Variable

13. Creating Dummy Variables Using @recode:
Example 3
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• Create a dummy variable equal to 1 if return<=-1.2 or return>=1, 0 otherwise.
Dummies with @recode: Example 3
1. Click on Dated workfile page. Type in the command window:
series dummy6=@recode(return<=-1.2 or return>=1,1,0)
2. Press Enter.
Original Series Dummy Variable

14. Creating Dummy Variables Using @recode:
Example 4
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• Suppose you would like to create two new series by separating an
existing series (return) as follows;
series1 collects values of return for which -0.3<return<0.3
series2 collects values of return for which return<=-0.3 or return>=0.3
Dummies with @recode: Example 4
1. Click on Dated workfile page. Type in the command window:
series series1=@recode(return>-0.3 and return<0.3,return,0)
series series2=@recode(return<=-0.3 or return>0.3,return,0)
2. Press Enter after each command line.

15. Creating Dummy Variables Using @recode:
Example 4 (cont’d)
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• The original series (return) and the two new dummy variables are shown here.
Original series Series 1 Series 2

16. Creating Dummy Variables Using @recode:
Example 5
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• Let’s create a total return index from daily S&P500 returns.
Dummies with @recode: Example 5
1. Click on Dated workfile page. Type in the command window:
series index=@recode(@trend=0,100, index(-1)*(1+return/100))
2. Press Enter.
Original Series Index

17. Creating Dummy Variables Using @recode:
Example 6
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• Lastly, suppose you want to create a series that excludes outliers from the
return series in the previous example.
• Specifically, suppose that the new series excludes the highest and the lowest
2.5% values of returns.
Dummies with @recode: Example 6
1. Click on Dated workfile page. Type in the command window:
series no_outlier=@recode(return>@quantile(return,0.025) and
return<@quantile(return,0.975), return, na)
2. Press Enter.

18. Creating Dummy Variables Using @recode:
Example 6 (cont’d)
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• The original series (return) and the new series are shown here.
Original series No Outlier

19. A Few Notes on Simple Dummy Variables
• For simple dummies, you don’t need to use smpl or @recode.
• You can create them simply by defining the logical expression directly in the
command window, as shown in the following examples.
• However, you may have to use smpl or @recode for more complex cases.
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20. A few Notes on Simple Dummy Variables:
Example 1
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• Create a dummy equal to 1 if return<=0, and 0 otherwise.
Simple Dummies: Example 1
1. Click on Dated workfile page. Type in the
command window:
series d1=(return<=0)
2. Press Enter.
Original Series Dummy Variable

21. A few Notes on Simple Dummy Variables:
Example 2
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• Create a dummy equal to 1 if return<=-0.5 or return>=0.1, and 0 otherwise.
Simple Dummies: Example 2
1. Click on Dated workfile page. Type in the command
window:
series d2 = return<=-0.5 or return>=0.1
2. Press Enter. Original Series Dummy Variable

22. Date Dummy Variables

23. Creating Date Dummies
• Dated dummies can be created by using @recode and @date or @dateval.
• For more details on date functions, see tutorial on Date Functions.
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Function Description
@date Returns the date associated with each observation
@dateval Returns the date associated with a text representation of a date
@year Returns the year in which each observation begins
@quarter Returns the quarter of the year in which each observation begins
@month Returns the month of the year in which each observation begins
@day Returns the day of the month in which each observations begins
@weekday Returns the day of the week
Main Functions

24. Creating Date Dummies:
Example 1
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• Suppose you want to create a dummy variable equal to 1 for all dates after
1995/03/15 and 0 otherwise.
Date Dummies: Example 1
1. Click on the Dated workfile page. Now, type in the command window:
series dumdate1=@recode(@date>@dateval("1995/3/15"),1,0)
2. Press Enter.
Alternatively, without @recode:
1. Type in the command window:
series dumdate1=@date>@dateval("1995/3/15")
2. Press Enter.
Dummy Variable

25. Creating Date Dummies:
Example 2
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• Create a dummy variable equal to 1 for all dates before April 1979 and after
February 1994.
Date Dummies: Example 2
1. Click on the Dated workfile page. Type in the command window:
series dumdate2=@recode(@date<@dateval("1979m4") or
@date>@dateval("1994m2"),1,0)
2. Press Enter (please type the command in one line).
Alternatively, without @recode:
1. Type in the command window:
series dumdate2=@date<@dateval("1979m4") or
@date>@dateval("1994m2")
2. Press Enter (please type the command in one line).

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Creating Date Dummies:
Example 2 (cont’d)
Dummy Variable
• A graph of the dummy show it assumes a value of 1 prior to April 1979 and
post February 1994.

27. Creating Date Dummies:
Example 4
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• Dated dummies can also be created using @year, @month, @day date functions.
• Create a dummy equal to 1 if the month is January or the day of the week is Friday.
Date Dummies: Example 4
1. Click on the Dated workfile page. Now, type in the command window:
series dumdate4=@recode(@month=1 or @weekday=5,1,0)
2. Press Enter.
Alternatively, without @recode:
1. Type in the command window:
series dumdate4=@month=1 or @weekday=5
2. Press Enter.
Dummy Variable

28. Creating Date Dummies:
Example 5
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• Create a dummy equal to 1 for all years after 1994 if the month is January or the
day of the week is Friday.
Date Dummies: Example 5
1. Click on the Dated workfile page. Now, type in the command window:
series dumdate5=@recode(@year>1994 and (@month=1 or @weekday=5),1,0)
2. Press Enter.
Alternatively, without @recode:
1. Type in the command window:
series dumdate5=@year>1994 and (@month=1 or @weekday=5)
2. Press Enter.

29. Creating Date Dummies:
Example 6
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• Create a dummy variable equal to 1 for all months when there is a presidential
election.
Date Dummies: Example 6
1. Click on the Dated workfile page. Now, type in the command window:
smpl @all
series dumpres=0
smpl if @mod(@year,4)=0 and @month=11
series dumpres=1
smpl @all
2. Press Enter after each command line.
Dummy Variable

30. Dummy Variables in Non-Dated
Workfiles

31. Dummies in Non-dated Workfiles
• You can follow the methodology used in “Dated Dummies” to create dummies
in non-dated workfiles.
• Simply use @obsnum (instead of @date) to create the dummy variables.
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32. Creating Dummies in Non-Dated Workfiles:
Example 1
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• In the Cross-Section page, create a dummy variable equal to 1 after the 5th
observation, and 0 otherwise.
Dummies in non-Dated Workfiles: Example 1
1. Click on the Cross-Section workfile page. Now, type in the command window:
series dum1=@recode(@obsnum>5,1,0)
2. Press Enter.
Dummy Variable
Alternatively, without @recode:
1. Type in the command window:
series dum1=@obsnum>5
2. Press Enter.

33. Creating Dummies in Non-Dated Workfiles:
Example 2
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• In the Cross-Section page, create a dummy variable equal to 1 for all the
observations between the 7th and 12th observation
Dummies in non-Dated Workfiles: Example 2
1. Click on the Cross-Section workfile page. Now, type in the command window:
series dum2=@recode((@obsnum>=7 and @obsnum<=12),1,0)
2. Press Enter. Dummy Variable
Alternatively, without @recode:
1. Type in the command window:
series dum2=@obsnum>=7 and @ obsnum<=12
2. Press Enter.

34. Creating Dummy Variables
Using @expand function

35. Creating Categorical Dummies
• Categorical dummies can be easily created by using @expand function.
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Function Description
@expand Allows you to create a group of dummy variables by expanding
out one or more series into individual categories

36. Creating Dummy Variables using @expand:
Example 1: Categorical Dummies
• Let’s create a group of series as follows:
One series with 1 if female and 0 if male
One series with 1 if male and 0 if female
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Dummies using @expand: Example 1
1. Click on the Cross-Section workfile page. Type in the command window:
group g1 @expand(female)
2. Press Enter.
• The group is shown here with
the two series separating
males from females.

37. Creating Dummy Variables using @expand:
Example 2: Categorical Dummies
• Now let’s create a new group of series as follows:
 One series containing 1 if “male” and “single”.
 One series containing 1 if “male” and “married”.
 One series containing 1 if “female” and “single”.
 One series containing 1 if “female” and “married”.
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Dummies using @expand: Example 2
1. Click on the Cross-Section workfile page. Type in the command window:
group g2 @expand(female, married)
2. Press Enter.

38. Creating Dummy Variables using @expand:
Example 3: Categorical Dummies
• Now let’s create a new group of series as follows:
 One series equal to educ (years of education) if male (female=0).
 One series equal to educ if female (female =1).
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Dummies using @expand: Example 3
1. Click on the Cross-Section workfile page. Type in the command window:
group g3 educ*@expand(female)
2. Press Enter.
• The group is shown here with the two
series showing the years of
education for males separately from
years of education for females.

39. • Dummies can also be created by using @expand in conjunction with other
date functions (@year, @month, @day, etc.).
• For example, suppose you would like to create a dummy variable for each
day of the week.
Creating Dummy Variables using @expand:
Example 4: Date Dummies
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Dummies using @expand: Example 4
1. Click on the Dated workfile page. Type in the command window:
group g1 @expand(@weekday)
2. Press Enter.

40. • Suppose that now you would like to create a dummy variable for each year.
Creating Dummy Variables using @expand:
Example 5: Date Dummies
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Dummies using @expand: Example 5
1. Click on the Dated workfile page. Type in the command window:
group g2 @expand(@year)
2. Press Enter.

41. Dummy Variables in Regressions

42. Dummies in Regressions:
Example 1
• In EViews you can use dummy variable expressions in regressions without
having to first create and save the dummies.
• Suppose you would like to estimate a regression of return on volume1 and a
dummy variable equal to 1 for all dates after 1994/12/2.
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Dummies in Regressions: Example 1
1. Click on the Dated workfile page. Type in the
command window:
equation eq1.ls return c volume1
@date>@dateval("1994/12/2")
2. Press Enter (type the command in one line).
Alternatively:
1. Select Quick → Estimate Equation from
the top menu bar.
2. The Equation Estimation box opens up.
Specify here your equation (as shown in
the figure)
3. Click OK.

43. Dummies in Regressions:
Example 1 (cont’d)
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• The estimation output is shown here.
• As you can see EViews estimates the coefficient of the dummy variable
directly without us having to create and save the date dummy first.
*Note: see tutorial on Basic Estimation for details
on regression analysis in EViews.

44. Dummies in Regressions:
Example 2
• Now suppose you would like to estimate a regression of return on volume1 and
a dummy variable equal to 1 for all Januaries since 1994/12/2.
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Dummies in Regressions: Example 2
1. Click on the Dated workfile page. Type in the command window:
equation eq2.ls return c volume1 (@date>@dateval("1994/12/2") and @month=1)
2. Press Enter.
• Note that there are no spaces in
the logical expression:
 @month=1 is correct
 @month = 1 is not correct

45. Dummies in Regressions:
Example 3
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• Now let’s carry out a regression in the Cross_Section workfile page.
• Suppose we want to regress wage on exper, educ and four dummy variables
created by @expand(female,married).
Dummies in Regressions: Example 3
1. Click on the Cross_Section workfile page.
Type in the command window:
equation eq1.ls wage exper educ
@expand(female, married)
2. Press Enter (type command in one line).

46. Dummies in Regressions:
Example 3 (cont’d)
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• In the previous example, notice that the constant was not included.
• If you include a constant, then EViews will be unable to estimate the
regression and return an error message because of perfect collinearity (the
dummy variable trap).
• You will receive an error message
(shown here).
• In order to estimate the regression with
a constant, you should exclude one of
the dummies.
Dummies in Regressions: Example 3
1. Type in the command window:
equation eq1.ls wage c exper educ
@expand(female, married)
2. Press Enter (type command in one line).

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• Let’s exclude one of the dummies. You can use either one of the following
commands:
 @dropfirst (drops the first dummy).
 @droplast (drops the last dummy).
Dummies in Regressions:
Example 3 (cont’d)
Dummies in Regressions: Example 3
1. Type in the command window:
equation eq2.ls wage c exper educ
@expand(female, married,@dropfirst)
2. Press Enter (type command in one line).