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From |
"Wallace, John" <[email protected]> |

To |
<[email protected]> |

Subject |
st: RE: re: missing dummy variable |

Date |
Wed, 10 Oct 2007 10:59:28 -0700 |

```
Dear Statalisters,
I have been exploring -xi3- recently, and I've been wondering why the e.
option for generating indicator variables relative to the grand mean
doesn't work the way Kit and Maarten describe. I've been playing with
some toy datasets trying to figure out how to generate the 95%
confidence intervals for the coefficient of the dropped level. I've
managed to deduce how to calculate the coefficient itself, but the
standard errors and so forth aren't obvious. Expanding on Maarten's
example (with Kit's suggestion included):
*------------------ begin example ---------------
sysuse auto, clear
gen domestic = !foreign
rename make desc
gen make = word( desc,1)
tab make
reg mpg foreign domestic, noconst hascons
xi3: regress mpg e.foreign
xi3: regress mpg e.make
*------------------ end example ---------------
Its clear that the information in the first two regressions is
equivalent, but the display would be better still if it was a
combination of both! If the _cons from the second regression was
combined with the explicit listing of both indicators in the first.
When the list of indicator variables gets long (as in the third
regression) , and especially when there are interactions, the task of
interpreting the dropped variables (and especially significance in the
t-test relative to the grand mean) becomes non-trivial (to me at least).
Is there something I'm missing?
John W.
-----Original Message-----
From: [email protected]
[mailto:[email protected]] On Behalf Of Kit Baum
Sent: Thursday, October 04, 2007 6:20 PM
To: [email protected]
Subject: st: re: missing dummy variable
Maarten suggested
You may have noticed that in the second model (both dummies) I did not
have a constant in the equation, this is delibarate. If you want to
enter all dummies you have to exclude the constant. The way to do that
is to add the -noconst- option in Stata, see the example below:
*------------------ begin example ---------------
sysuse auto, clear
gen domestic = !foreign
reg mpg foreign
reg mpg foreign domestic, noconst
*------------------- end example ----------------
In the last command, I would use
reg mpg foreign domestic, nocons hascons
By adding the -hascons- option you are telling Stata that there
really is a constant term in the equation by virtue of using the
complete set of dummies. This will cause the F-stat of the second reg
to be exactly like that of the first, as it is testing the hypothesis
that the coeffs differ from the grand mean of mpg rather than from zero.
Kit Baum, Boston College Economics and DIW Berlin
http://ideas.repec.org/e/pba1.html
An Introduction to Modern Econometrics Using Stata:
http://www.stata-press.com/books/imeus.html
*
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```

**Follow-Ups**:**Re: st: RE: re: missing dummy variable***From:*Maarten buis <[email protected]>

**References**:**st: re: missing dummy variable***From:*Kit Baum <[email protected]>

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