You may want to post this to a statistics list, this is a list
concerning the use of Stata.
cheers,
Jeph
Carol Bao wrote:

Hi, there,

I am running a first differencing model and have two

estimation questions:

1. For a dichotomous dummy variable, the difference

can be -1, 0 and 1. Instead of using this directly as

a regressor, is it econometrically correct to generate

three new dummy variables respectively for the three

categorized difference and use them as regressors

instead:

eg. instead of: \delta Y = \beta \delta X,

estimate: \delta Y = \beta1 Z2 + \beta2 Z3, where Z2=1

if \delta X==0 and Z3=1 if \delta X==1 (default is if

\delta X=-1).

If yes, is there any paper or book chapter that can be

referred to?

2. Dealing with age and year dummies. Since the

difference age is the same for all persons, it seems

meaningless to use (\delta age) as a regress (or does

it?) Is it correct to use individual age dummies to

control for cohort effects? Also, should year dummies

be included as well? Is there any paper or book

chapter that can be referred to in this regard?

Any information is highly appreciated.

Thank you very much in advance,

Carol

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