I have a panel data set. My dependent variable is total costs, and almost all of my independent variables are categorical variables. For instance, age is "old","new". Now i have some questions.
Should i use a dummy for all of them? For example, only type variable has 33 values itself, or i can use clustering and reduce them? Or any other way if you know)
Is there a difference in terms of behaviour between categorical variables which have a rank or not? For example type is "A","B",..."S" so no rank between A and B but quality is "A1","A2","A3" which A1 means highest quality.
I don't know why, I can't find enough information about variable selections and making data ready. So now i have lots of variable and I think I should choose between them and also reduse number of dummies.