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st: state trends

From   sara borelli <[email protected]>
To   [email protected]
Subject   st: state trends
Date   Mon, 18 Oct 2010 22:02:08 +0100 (BST)

Dear statalister
I have a couple of questions.
I apologyze in adavance if these are too basic but I am bit confused
I am running a model with state and year fixed effects and I need to add state specific time trends. I created a dummy for each state and interacted it with the variable year, where year=1990,1991,1992,1993...
The trend variables created are:  trendstate1  trendstate2 ....trendstate51

I also re-scaled the year variable so that
yearnew =1 if year==1990; =2 if year==1991; =3 if year==1992  and so on.
The trend variables in this case are:  trendnewstate1...trendnewstate51

I then regressed:
xi: y  x  i.year i.state  trendstate1-trendstate51
xi: y  x  i.yearnew  i.state  trendnewstate1-trendnewstate51

the coefficient of my X variable of interest is the same in both regressions but the coefficient on the state fixed effects are very different. It must be due to the rescaling of the year variable, but I am not sure why.

I then tried to add a quadratic time trend. That is I interacted each state dummy with year2=year*year.
Then I run
xi: y  x  i.year i.state  trendstate1-trendstate51                       trendsquarestate1-trendsquarestate51 
but stata altogether drops the state fixed effects

However, if I create   yearnew2=yearnew*yearnew and quadratic trends based on it and run
xi: y  x  i.year   i.state  trendnewstate1-trendnewstate51   trendnewsquarestate1-trendnewsquarestate51

then stata does not drop the state fixed effects and estimates differ
I am not sure what is going on or what I am doing wrong

thanks for any help


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