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Re: st: fixed effects with multicollinearity


From   daniel klein <klein.daniel.81@googlemail.com>
To   statalist@hsphsun2.harvard.edu
Subject   Re: st: fixed effects with multicollinearity
Date   Fri, 29 Jul 2011 11:01:17 +0200

Colin,

please note that mean centring does nothing to solve the underlying
problem of collinarity (if there is something like that)., see e.g.
Echambadi and Hess (2007) or Shieh, G. (2011).

However, in another post
(http://www.stata.com/statalist/archive/2011-04/msg01204.html) Maarten
Buis pointed out that in the special case, where a variable is
interacted with itself, to model non-linearities, centering can help.


Echambadi and Hess (2007). Mean-Centering Does Not Alleviate
Collinearity Problems in Moderated Multiple Regression Models.
Marketing Science, 26: 438-445

Shieh, G. (2011). Clarifying the role of mean centring in
multicollinearity of interaction effects. British Journal of
Mathematical and Statistical Psychology, 64: 1-12

Best
Daniel
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