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From |
bmilanovic@worldbank.org |

To |
statalist@hsphsun2.harvard.edu |

Subject |
Re: st: RE: Your opinion on income groups and inflation |

Date |
Sat, 7 Jun 2008 14:42:13 -0400 |

On income groups (intervals), I would not use dummies because you have information about income _levels_ which would be otherwise lost. An income interval of 300 to 400, is not the same thing as an income interval of 1200 to 3600. Since you do not have information about distribution of income within intervals, nor apparently about the means, I would use the average of the interval as my income variable. (Assumes, of course, a uniform distribution within the interval. If you want to be "fancier", you may want to use something like the 65th percentile of each interval on the assumption that the distribution is lognormal within each interval, and thus the mean is to the right of the median; empirical income distributions have a mean which normally lies btw. the low 60s and low 70s percentiles). On trust, you may want to use dummies--on the assumption that moving from trust level 1 to 2 is not the sane thing than moving from trust level 8 to 9 etc. But, on the other hand, keeping an ordered categorical variable makes it easier to interpret the results, and is easier on the reader who does not need to be presented with ten variables. Best, Branko Development Research, World Bank Email: bmilanovic@worldbank.org or branko_mi@yahoo. tel: 202-473-6968 World Bank, Room MC 3-559 1818 H Street NW Washington D.C. 20433 For "Worlds Apart" see http://www.pupress.princeton.edu/titles/7946.html Website: http://econ.worldbank.org/projects/inequality For papers see also: http://econpapers.hhs.se/ http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=149002 Andrea Bennett <mac.stata@gmail.co m> To Sent by: statalist@hsphsun2.harvard.edu owner-statalist@hsp cc hsun2.harvard.edu Subject Re: st: RE: Your opinion on income 06/07/2008 02:01 PM groups and inflation Please respond to statalist@hsphsun2. harvard.edu Thank you both for you suggestions! So, I will use NO dummies for income since there is no/I have no theoretical expectation that the effects should be different within each specific level of income, rather I do expect one direction of the effect of income on y, only. I might test for an interaction dummy with the highest income class, though. In the case of the "trust" variable I will NOT use dummies, too (for the above reason). Many thanks for you little helper! On Jun 7, 2008, at 7:40 PM, SamL wrote: > Making ordered categories dummy variables vs. making them one > ordered variable by assigning values are both okay. The dummy > variable approach is most flexible, allowing the effect to be > different across categories. But, if you have no theoretical > expectation for that, nor any reason to believe those particular > categorical lines match the lines you'd draw if you could, then I > agree with Martin below. > > Sam > > On Sat, 7 Jun 2008, Martin Weiss wrote: > >> The obsession with dummies in some posts is a little bewildering. >> If you >> already have an ordered variable recording trust in government it >> is hard to >> see why you would want to throw away this information and let the >> resulting >> dummies eat up your df. Just include the variable in the regression >> as it >> is. If you absolutely want to, -tabulate, generate- could be >> helpful. Be >> sure to omit one dummy in the regression to dodge the famous dummy >> trap... >> >> Martin Weiss >> _________________________________________________________________ >> >> Diplom-Kaufmann Martin Weiss >> Mohlstrasse 36 >> Room 415 >> 72074 Tuebingen >> Germany >> >> Fon: 0049-7071-2978184 >> >> Home: http://www.wiwi.uni-tuebingen.de/cms/index.php?id=1130 >> >> Publications: http://www.wiwi.uni-tuebingen.de/cms/index.php?id=1131 >> >> SSRN: http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=669945 >> >> -----Original Message----- >> From: owner-statalist@hsphsun2.harvard.edu >> [mailto:owner-statalist@hsphsun2.harvard.edu] On Behalf Of Andrea >> Bennett >> Sent: Saturday, June 07, 2008 7:19 PM >> To: statalist@hsphsun2.harvard.edu >> Subject: st: Your opinion on income groups and inflation >> >> Dear Statalisters, >> >> I wonder what you do think about the following issues: >> >> 1. >> I have a cross-sectional panel data set with a time span of 10 years >> (5 complete surveys). The survey does NOT ask for (more or less) >> precise income but instead for income groups (e.g. between 3000 and >> 4000 $). As this does cluster the income quite a bit I was wondering >> of how much use it would be to control for the inflation rate (which >> was rather low, about 1-2% p.a.)? Still, I tend to control for >> inflation since there is a gradual shift from lower income groups to >> higher income groups. Would you include the inflation adjustments or >> not? >> >> 2. >> Do I need to treat these income groups as categorical data and >> therefore generate dummies for each income category? Do I also need >> to >> control for the highest income group with an additional dummy since >> it >> measures income>=10'000$? This just affects the df quite a bit, I >> think. How would you deal with such a variable? >> >> 3. >> Related to the above question, I wonder how one usually deals with >> interval variables. I have a variable measuring the trust/confidence >> in the national government on a scale of 0-10 (1-point steps). Again, >> as I have learned it, I would have to include a dummy for each trust- >> level. Again, losing df is what brings me to ask you again. Do I need >> to generate dummies here or not? >> >> >> Kind regards and many thanks for your consideration, >> >> Andrea >> >> >> * >> * For searches and help try: >> * http://www.stata.com/support/faqs/res/findit.html >> * http://www.stata.com/support/statalist/faq >> * http://www.ats.ucla.edu/stat/stata/ >> >> * >> * For searches and help try: >> * http://www.stata.com/support/faqs/res/findit.html >> * http://www.stata.com/support/statalist/faq >> * http://www.ats.ucla.edu/stat/stata/ >> > * > * For searches and help try: > * http://www.stata.com/support/faqs/res/findit.html > * http://www.stata.com/support/statalist/faq > * http://www.ats.ucla.edu/stat/stata/ * * For searches and help try: * http://www.stata.com/support/faqs/res/findit.html * http://www.stata.com/support/statalist/faq * http://www.ats.ucla.edu/stat/stata/ * * For searches and help try: * http://www.stata.com/support/faqs/res/findit.html * http://www.stata.com/support/statalist/faq * http://www.ats.ucla.edu/stat/stata/

**Follow-Ups**:**Re: st: RE: Your opinion on income groups and inflation***From:*Richard Williams <Richard.A.Williams.5@ND.edu>

**References**:**Re: st: RE: Your opinion on income groups and inflation***From:*Andrea Bennett <mac.stata@gmail.com>

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