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From |
Kit Baum <baum@bc.edu> |

To |
statalist@hsphsun2.harvard.edu |

Subject |
re: st: time trend or year effect for pooled data |

Date |
Fri, 12 Mar 2010 10:23:07 -0500 |

<> Yan said > 1) I have a equation as this: y=a+b1*X1+b2*X2+b3*X3+...+ c*T + > error, where a, b, c are coefficients; > 2) Y is a couple of dependent variables, which could be binary or > continuous; > 3) T is a time trend and I use it to capture year effect; > 4) My observation is user groups which were visited in different > years and I pool them together, treating them as cross-sectional data. > > My question: how should I treat T? Should I value it as 1, 2, 3, ..., OR > just yearly (eg., 1990, 1991, 1992, ....). I run regressions (both > Probit and OLS) using both methods, and the regression results give me > different coefficients ad t statistics for "T". > > Could anyone explain why and which method is appropriate for pooled > data? In a pooled setting, I would include time fixed effects (i.e. i.year in factor-variable notation) which will estimate a coefficient for each year. This set of variables will absorb all time-specific (or "macro') variation. If you use instead a time trend, it does not matter whether it starts from 1 or starts from 1990; any variable for which D.time is a constant will yield the same results, in terms of explanatory power. But using a linear time trend constrains the time-effect coefficients to lie on a straight line, whereas estimating i.time allows the coefficient pattern over years to be whatever the data chooses. If you have ten years, it is a difference between estimating nine coefficients and one coefficient. Are those eight constraints accepted by the data? That is an easily testable hypothesis. Kit Baum | Boston College Economics & DIW Berlin | http://ideas.repec.org/e/pba1.html An Introduction to Stata Programming | http://www.stata-press.com/books/isp.html An Introduction to Modern Econometrics Using Stata | http://www.stata-press.com/books/imeus.html * * For searches and help try: * http://www.stata.com/help.cgi?search * http://www.stata.com/support/statalist/faq * http://www.ats.ucla.edu/stat/stata/

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