Hello and thank you in advance,
I have a question about detecting collinearity.
First, see my example:
***BEGIN***
sysuse auto, clear
xi: qreg mpg foreign i.make, nolog
***END***
Note in this example that I used quantile regression to determine effects of foreign and make on MPG.
I used xi command to create dummy categorical variables for make (note that this creates quite a large number of variables for make, as make is a continuous variable, but I did this for example).
Note that the coefficients are very small (e.g. e^-15), approaching zero.
In this example, does this indicate collinearity? And why?
The reason I used such a granular dummy categorization for make is to highlight my example. In my real data, I have age and wage. When I use categories such as age/10 or wage/10000, this gives me "collinearity" (i.e. very small coefficients). When I collapse these age or wage categories to smaller categories (i.e. age or wage as binomial variables, greater than or less than a certain value), I correct this problem of "collinearity".
Am I correct in my assumptions?
Thank you.
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