st: re; general econometrics question

[Kit Baum <baum@bc.edu>]

S. Roy said

Thank you very much for your reply. I have interacted the X term with
the institutional factor Z. Given the nature of the dependence, I was
thinking of interacting Z with something like (Xbar  -  X(i)).


It would be more standard to write the difference (x_i - x_bar), but  
it matters not. Algebraically, using auto.dta, compare

. reg price mpg trunk weight trunkw

. reg price mpg trunk weight trunkcw

where trunkw = trunk*weight and trunkcw = trunk*(weight - mean(weight)).

The two regressions have the same R2, Root MSE, and coefficient / std  
err on the interaction term. The coefficient on trunk changes, that's  
all.

Kit

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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