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st: re; general econometrics question

From   Kit Baum <>
Subject   st: re; general econometrics question
Date   Fri, 23 Nov 2007 10:31:40 -0500

S. Roy said

Thank you very much for your reply. I have interacted the X term with
the institutional factor Z. Given the nature of the dependence, I was
thinking of interacting Z with something like (Xbar - X(i)).

It would be more standard to write the difference (x_i - x_bar), but it matters not. Algebraically, using auto.dta, compare

. reg price mpg trunk weight trunkw

. reg price mpg trunk weight trunkcw

where trunkw = trunk*weight and trunkcw = trunk*(weight - mean(weight)).

The two regressions have the same R2, Root MSE, and coefficient / std err on the interaction term. The coefficient on trunk changes, that's all.


Kit Baum, Boston College Economics and DIW Berlin
An Introduction to Modern Econometrics Using Stata:

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