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st: Re: Dummy Variable Trap

From   "Michael Blasnik" <[email protected]>
To   <[email protected]>
Subject   st: Re: Dummy Variable Trap
Date   Wed, 08 Jun 2005 09:00:30 -0400

If your panels are unbalanced, then xtreg may not need to drop any of the time dummies because they will not always sum to 1 and so will not be perfectly collinear.

Michael Blasnik
[email protected]

----- Original Message ----- From: "Cordula Stolberg" <[email protected]>
To: <[email protected]>
Sent: Tuesday, June 07, 2005 9:25 AM
Subject: st: Dummy Variable Trap

Hello All,

I have a panel regression, which I first run as a random effects regression
and then as pooled OLS. I have yearly observations and add a time dummy for
each year (the time dummies are also used for an interaction term with
another independent variable). I know that to avoid the dummy variable trap,
I should drop one of the dummies. I also know that Stata otherwise drops one
of the time dummies. Now I have estimated the random effects regression and
the pooled OLS regression and kept (by mistake) all of the time dummies.
However, instead of dropping one of the dummies, Stata kept all and
delivered results. What am I missing here?

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