What Are Dummy Variables and How to Use Them in a Regression Model

Mean price of automobiles as a function of number of cylinders. Data source: UC Irvine (Usage Terms) (Image by Author)

And how to interpret the regression coefficients of dummy variables

A dummy variable is a binary variable that takes a value of 0 or 1. One adds such variables to a regression model to represent factors which are of a binary nature i.e. they are either observed or not observed.

Within this broad definition lie several interesting use …

categorical-data dummy-variable fixed-effects regression regression-analysis seasonality variables