First-differencing time dummies is OK. It is consistent with the levels model.
But actually it hardly makes any difference whether you enter the time dummies directly into the differenced regression without differencing, or you difference them too. This is because the joint *linear span* of the time dummies is the same before and after differencing, so their coefficients will differ but none of the other coefficients should change. There's a brief mention of this in footnote 18 of my "How to Do xtabond2" paper.
For basically the same reasons, if you are including time dummies anyway, it shouldn't matter whether you include the constant or not in the differenced regression. If you do include it, one of the time dummies should drop out but not much else should change.
--David
> -----Original Message-----
> From: [email protected] [mailto:owner-
> [email protected]] On Behalf Of Sebastian F. B�chte
> Sent: Wednesday, October 17, 2007 8:27 AM
> To: [email protected]
> Subject: Re: st: first difference and time dummies.
>
> Alessia
>
> this is a repeat post of your message to the list for which you so far
> did not receive any answers. I guess this may be due to an
> inconclusive presentation of your "problem". You should try to give
> more details as
>
> - you regression command
> - variables used and what they mean
> - ...
>
> This will certainly increase your chances to be helped out by other
> list subscribers.
>
> Regards
> Sebastian
>
> 2007/10/17, alessia matano <[email protected]>:
> > Hi,
> > I would like to ask you one thing i do not well understand: I am
> > performing a regression in first differences. In the level equations i
> > was using time dummies, now i do not know.
> > 1) if i use them in differences (which take value1 0 -1) the
> > regression does not work anymore. I think it is not correct to use
> > such modified dummies (they are not more dummies)
> > 2) if i use them in levels (they are 0 1), also the regression does
> > not work and i think it is not right to assign to a single year the
> > impact of the difference between two years
> > 3) if i do not use them it works, and it has closer results for the
> > level equation.
> >
> > I am asking also if not trying to create such dummies which take value
> > of 1 for the two years the difference concerns, but i am not sure it
> > has sense..
> >
> > Another question: stata automatically put the constant in rthe
> > regression. To mantain the structure of the level equation should it
> > be not right to take it off??
> >
> >
> > Anyone of you can help me or suggest me something to read about?
> >
> > Many thanks
> > alessia
> >
> > p.s. I am sorry, I already sent this email, but it was yesterday in
> > the night. so I am trying again last time
> > *
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> > * http://www.stata.com/support/statalist/faq
> > * http://www.ats.ucla.edu/stat/stata/
> >
> *
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*
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