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st: xtivreg2 and interaction terms


From   "Klien, Michael" <Michael.Klien@wu.ac.at>
To   "'statalist@hsphsun2.harvard.edu'" <statalist@hsphsun2.harvard.edu>
Subject   st: xtivreg2 and interaction terms
Date   Wed, 15 Sep 2010 17:13:54 +0200

Dear statalist users,

I am estimating a spatial lag model with fixed effects by IV/GMM using xtivreg2:
xtivreg2 y x (wy = wx),fe 
This estimation is fine. The problem occurs when I estimate the spatial lag with a dummy interaction (d):
xtivreg2 y x (wy_d0 wy_d1 = wx_d0 wx_d1),fe
The resulting coefficient estimates for wy_d0 and wy_d1 are almost the same, which is very different from my ML results in matlab. I found out that the difference between the two is that the matlab routine first demeans all data and then generates the interaction terms. With xtivreg2 and similar commands I need to input the interacted variable, which is only demeaned afterwards. If I demean my data manually in stata and use ivreg2 the IV results are much closer to the ML results.
So my question is, what is the correct approach? First demean the data and then interact or the other way round? I was unable to find a reference for such a case.

Thanks very much in advance!
Michael

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