Figure 9-13: STATA regression output of dummy variable
interacted model with F-test of joint significance.
The advantage of the dummy variable approach to
testing for structural stability is that it allows you to identify
the source of the difference between the groups. In other
words, the F-test (covered in the preceding section) allows
you to identify an overall structural break, but the significance
of the individual coefficients allows you to identify whether
the difference is primarily in the intercept, slope, or both. The
disadvantage of the dummy variable approach is that it may
not be practical if you’re working with numerous independent
variables.