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

dichotomous dependent variable models
in which the dependent variable has only two
categories.
20
The Chow test procedure can be performed even in the presence of heteroscedasticity, but then
one will have to use the 
Wald test.
The mathematics involved behind the test are somewhat
involved. But in the chapter on heteroscedasticity, we will revisit this topic.
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Part One
Single-Equation Regression Models
9.11
Topics for Further Study
Several topics related to dummy variables are discussed in the literature that are rather ad-
vanced, including (1)
random,
or
varying, parameters models,
(2)
switching regression
models,
and (3)
disequilibrium models.
In the regression models considered in this text it is assumed that the parameters, the
β
’s, are unknown but fixed entities. The random coefficient models—and there are several
versions of them—assume the 
β
’s can be random too. A major reference work in this area
is by Swamy.
21
In the dummy variable model using both differential intercepts and slopes, it is implicitly
assumed that we know the point of break. Thus, in our savings–income example for
1970–1995, we divided the period into 1970–1981 and 1982–1995, the pre- and postreces-
sion periods, under the belief that the recession in 1982 changed the relation between
savings and income. Sometimes it is not easy to pinpoint when the break has taken place.
The technique of 
switching regression models (SRM)
has been developed for such situa-
tions. SRM treats the breakpoint as a random variable and through an iterative process
determines when the break might have actually taken place. The seminal work in this area is
by Goldfeld and Quandt.
22
Special estimation techniques are required to deal with what are known as