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# Re: st: Binary Variables

 From Christopher Baum To "statalist@hsphsun2.harvard.edu" Subject Re: st: Binary Variables Date Wed, 2 Jun 2010 07:54:26 -0400

<>
Not true. The demeaned depvar will merely be zero for that region; it will not be dropped from the regression. E.g.,

webuse grunfeld,clear
xtreg invest mvalue kstock,fe
replace invest = 410.475 if company==2
xtreg invest mvalue kstock,fe
assert e(N) == 200

random effects would make no difference; the depvar for that region would be (k - \lambda k) = k( 1 - lambda), where k is the constant value of the depvar and lambda is the quasi-demeaning parameter. That will still be a constant, just not zero.

Kit

On Jun 2, 2010, at 7:16 AM, Maarten buis wrote:

> --- On Wed, 2/6/10, Natalie Trapp wrote:
>> I use a Dummy Variable for 150 regions within the EU27.
>> When I regress the model, I use one region as a reference
>> group, but Stata still automatically omits four to five more
>> regions. Is it maybe because the regions are too similar in
>> their characteristics so that I have to build groups of
>> similar regions? Or is there another way how I can do the
>> regression with all regions of interest?
>
> This is a fixed effects regression (assuming you are using
> linear regression, -regress-).  This type of regression can
> only make use of variation within a region, so if the dependent
> variable is constant within a region, the region will be dropped.
> Your alternative is to use random effects regression (see:
> -help xtreg-), but that has disadvantages of its own. It is up
> to you to decide which disadvantages you think are least bad...
>
> Hope this helps,
> Maarten
>
> --------------------------
> Maarten L. Buis
> Institut fuer Soziologie
> Universitaet Tuebingen
> Wilhelmstrasse 36
> 72074 Tuebingen
> Germany
>
> http://www.maartenbuis.nl
> --------------------------
>
>
>
>
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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

*
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