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st: STATA drops squared terms from the model

Subject   st: STATA drops squared terms from the model
Date   Mon, 13 Jul 2009 18:17:44 +0200

Dear Statalist,

I estimate a log-log model with interaction term of the following form:

lnY = b0 + b1lnX + b2lnZ + b3lnX*lnZ + e

I want to test whether X and Z have a nonlinear effect on Y. Therefore, I add squared terms of X and Z to the model. When I estimate this model STATA drops X and Z from the model due to multicollinearity. The correlation coefficients between the unsquared and squared terms are very high (> 0,96). 

I have some problems interpreting this result. Does this mean that there is no non-linear effect?

Best regards


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