The McGraw-Hill Series Economics essentials of economics brue, McConnell, and Flynn Essentials of Economics

spline functions.
18
17
The threshold value may not always be apparent, however. An ad hoc approach is to plot the
dependent variable against the explanatory variable(s) and observe if there seems to be a sharp
change in the relation after a given value of 
X
(i.e., 
X
*). An analytical approach to finding the break
point can be found in the so-called 
switching regression models.
But this is an advanced topic
and a textbook discussion may be found in Thomas Fomby, R. Carter Hill, and Stanley Johnson, 
Advanced Econometric Methods,
Springer-Verlag, New York, 1984, Chapter 14.
18
For an accessible discussion on splines (i.e., piecewise polynomials of order 
k
), see Douglas C.
Montgomery, Elizabeth A. Peck, and G. Geoffrey Vining, 
Introduction to Linear Regression Analysis,
John Wiley & Sons, 3d ed., New York, 2001, pp. 228–230.
Y
a
1
–
b
2
X
*
α β
a
1
α
Sales commission
X
*
1
b
1
β
1
b
1
+
b
2
β
β
X 
(sales)
FIGURE 9.6
Parameters of the
piecewise linear
regression.
guj75772_ch09.qxd 12/08/2008 04:19 PM Page 296

---

Chapter 9
Dummy Variable Regression Models
297
9.9
Panel Data Regression Models
Recall that in Chapter 1 we discussed a variety of data that are available for empirical
analysis, such as 
cross-section, time series, pooled 
(combination of time series and cross-
section data), and
panel data.
The technique of dummy variable can be easily extended to
pooled and panel data. Since the use of panel data is becoming increasingly common in
applied work, we will consider this topic in some detail in Chapter 16.