Re: st: RE: RE: estimation with a time trend.

[Maarten buis <maartenbuis@yahoo.co.uk>]

--- On Mon, 5/7/10, natasha agarwal wrote:
> The time dummies are highly collinear with one of my
> variables in the model. However, exclusion of the same
> would lead to an error as we wanted to control for
> business cyclical effects. For the very reason, we
> decided to introduce a rough measure of time dummies
> that would be a trend. 

The point of a cyclus is that it implies things going up and than
going down again and than going up again and etc. etc. A trend
implies that something either goes up or goes down. So it is 
odd to capture something like a cyclus with a trend. If your time 
frame is short enough compared with the period of the cycle (how
long it takes to for the cycle to finish an entire first up and 
than down and than up again cyclus), you can get away with that, 
but that is something that you will need explicitly explain in 
your paper. I would look for official data on the timing of the 
business cycle and see if my timeframe fits entirely within a 
single such period and present this as additional evidence that
my time trend captures the business cycle.

-- Maarten

--------------------------
Maarten L. Buis
Institut fuer Soziologie
Universitaet Tuebingen
Wilhelmstrasse 36
72074 Tuebingen
Germany

http://www.maartenbuis.nl
--------------------------


      

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