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From |
Maarten buis <maartenbuis@yahoo.co.uk> |

To |
statalist@hsphsun2.harvard.edu |

Subject |
Re: st: Multicollinearity in panel data |

Date |
Wed, 9 Feb 2011 11:43:32 +0000 (GMT) |

--- On Wed, 9/2/11, Jing Zhou wrote: > However, according Maarten's saying, if subsstracting > a value (i.e. the mean value), some x which are below > the mean value will become negative, but x^2 will be > still positive. I wonder whether this situation is > acceptable? Absolutely, it is even helpful in identifying the separate "effects" of x and x^2. You want the relationship between x and x^2 to be as non-linear as possible. This is something different than the relationship between y and x. The former is your choice, the latter is an empirical finding. Imagine what would happen when x^2 where almost a linear representation of x, than how would a regression distinguish between x and x^2? It is the non-linearity of the relationship between x and x^2 that makes sure that a regression can distinguish between x and x^2, and thus give them separate "effects". This non-linearity is maximized (i.e. the absolute correlation is minimized) when the minimum of that curve is set at the mean. *--------------------- begin example ---------------- sysuse nlsw88, clear gen byr = 1988-age gen cbyr = . gen cbyr2 = . tempname memhold tempfile results postfile `memhold' base abscorr using `results' forvalues j = 1942/1948 { qui replace cbyr = byr - `j' qui replace cbyr2 = cbyr ^2 qui corr cbyr* post `memhold' (`j') (abs(r(rho))) } sum byr, meanonly qui replace cbyr = byr - r(mean) local m = r(mean) qui replace cbyr2 = cbyr ^2 qui corr cbyr* post `memhold' (`m') (abs(r(rho))) forvalues j = 1949/1954 { qui replace cbyr = byr - `j' qui replace cbyr2 = cbyr ^2 qui corr cbyr* post `memhold' (`j') (abs(r(rho))) } postclose `memhold' use `results', clear twoway line abscorr base *--------------- end example ------------------ (For more on examples I sent to the Statalist see: http://www.maartenbuis.nl/example_faq ) Hope this helps, Maarten -------------------------- Maarten L. Buis Institut fuer Soziologie Universitaet Tuebingen Wilhelmstrasse 36 72074 Tuebingen Germany http://www.maartenbuis.nl -------------------------- * * For searches and help try: * http://www.stata.com/help.cgi?search * http://www.stata.com/support/statalist/faq * http://www.ats.ucla.edu/stat/stata/

**Follow-Ups**:**Antwort: Re: st: Multicollinearity in panel data***From:*Justina Fischer <JFischer@diw.de>

**Re: st: Multicollinearity in panel data***From:*Maarten buis <maartenbuis@yahoo.co.uk>

**References**:**Re: st: Multicollinearity in panel data***From:*"Jing Zhou" <jing.zhou@rmit.edu.au>

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