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st: Re: dummy question

From   Kit Baum <[email protected]>
To   [email protected]
Subject   st: Re: dummy question
Date   Mon, 29 Nov 2004 08:40:47 -0500

An approximate solution to this question (as a little algebra will show) is to define the dummies 1-(G-1) as d_i - d_G for G groups. (Approximate depending on how group sizes differ across the dummies). As an example:

webuse grunfeld, clear
drop if company>5
tab company, gen(co)
forv i=1/4 {
gen Co`i' = co`i'-co5

su invest
reg invest co1-co4
reg invest Co*
lincom -1*(Co1+Co2+Co3+Co4)

As you can see, the constant term in the latter regression is the grand mean.
The coefficient on the excluded dummy can be expressed (via lincom) as minus the sum of the other dummy coefficients.

Kit Baum, Boston College Economics

On Nov 29, 2004, at 2:33 AM, Javier wrote:

One possibility recommended in the literature was to
use restricted least
squres method (Greene, Seaks 1991). It recommends to
set the restrictions to
dummies so that the weighted (according to weights of
observation in
endogenous variable) sum of all dummies (no reference
category is omitted) is equal to zero.
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