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From |
Maarten Buis <maartenlbuis@gmail.com> |

To |
statalist@hsphsun2.harvard.edu |

Subject |
Re: st: Trends and Time dummies |

Date |
Mon, 12 Sep 2011 10:11:06 +0200 |

On Sun, Sep 11, 2011 at 4:26 PM, Venkiteshwaran, Vinod wrote: > I apologize for not making the specification more clear. > I am attempting to run a regression precisely in the format you have specified in your response. > I do have t-1 dummies to avoid the dummy variable trap. > Adding a trend actually forces me to drop another dummy since the trend variable is a linear transformation of the remaining dummies in the model. > Therefore in the model with the trend and year dummies I have t-2 time dummy variables. > I think I follow the interpretation you have provided. > What complicates the situation I have is in relation to which years were dropped. > For example, if I drop the first two years, last two years or one at the beginning of the sample and one at the end of the sample. > > The focus of my study is on the coefficients of the time dummies and if there is a trend. Adding a trend does not change your model, it just divides the same information differently across coefficients. You can see that in the example below, both models lead to exactly the same predictions. So, if you find the dummies + trend model hard to interpret then you can, without loss of information, leave the trend out. If you let the dummies represent a coarser subdivision, for example the trend is annual but the dummies represent decades, than these are two substantively different models. The model with decade indicator variables allows jumps at the beginning and end of each decade, while the model with only the trend just represents a linear trend. *----------------- begin example ----------------- use http://fmwww.bc.edu/repec/bocode/g/gss.dta, clear gen year = coh*10 // adding a trend does not change the model when // you have one indicator variable for each year reg degree i.year c.coh predict yhat1 reg degree i.year predict yhat2 twoway scatter yhat1 yhat2, aspect(1) || /// function identity = x, range(.5 2.1) /// ytitle(trend + dummies) /// xtitle(only dummies) // it does change the model (and may or may not be // a meaningful compromise between annual dummies and // one linear trend ) when you enter one indicator // variable per decade. gen decade = floor(coh) reg degree i.decade coh predict yhat3 reg degree coh predict yhat4 sort coh by coh : gen byte mark = _n == 1 twoway line yhat3 coh if mark || /// line yhat4 coh if mark || /// scatter yhat2 coh if mark, /// legend(order( 1 "trend + decade" /// 2 "just trend" /// 3 "annual estimate" )) *------------------ end example ------------------ (For more on examples I sent to the Statalist see: http://www.maartenbuis.nl/example_faq ) Hope this helps, Maarten -------------------------- Maarten L. Buis Institut fuer Soziologie Universitaet Tuebingen Wilhelmstrasse 36 72074 Tuebingen Germany http://www.maartenbuis.nl -------------------------- * * 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/

**References**:**Re: st: Trends and Time dummies***From:*"Venkiteshwaran, Vinod" <Vinod.Venkiteshwaran@tamucc.edu>

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