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RE: st: fixed effects with multicollinearity


From   "Reddy, Colin" <creddy@uj.ac.za>
To   "statalist@hsphsun2.harvard.edu" <statalist@hsphsun2.harvard.edu>
Subject   RE: st: fixed effects with multicollinearity
Date   Fri, 29 Jul 2011 09:19:03 +0000

Yes, drop from the model.

The FE estimation in Stata does mean centering in any case but apparently it removes the effects of other time invariant variables in the model if any. Should one then use the OLS plus dummies? Can one simply add the "robust" to the code for OLS plus dummies to account for any heteroskedacity? I guess a post-estimation normality check is also in order?

Colin
________________________________________
From: owner-statalist@hsphsun2.harvard.edu [owner-statalist@hsphsun2.harvard.edu] on behalf of Nick Cox [njcoxstata@gmail.com]
Sent: 29 July 2011 11:13 AM
To: statalist@hsphsun2.harvard.edu
Subject: Re: st: fixed effects with multicollinearity

Yes, if by drop you mean omit from the model (not -drop- from the
dataset). Best to do it on scientific, substantive or practical
grounds if there is a choice.

On Fri, Jul 29, 2011 at 10:07 AM, Reddy, Colin <creddy@uj.ac.za> wrote:
> Thanks Daniel
> So I guess the best is to drop one of the collinear variables.?
>
> Colin ________________________________________
>
> From: owner-statalist@hsphsun2.harvard.edu [owner-statalist@hsphsun2.harvard.edu] on behalf of daniel klein [klein.daniel.81@googlemail.com]
> Sent: 29 July 2011 11:01 AM
> To: statalist@hsphsun2.harvard.edu
> Subject: Re: st: fixed effects with multicollinearity
>
> 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
>
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