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From |
Partho Sarkar <[email protected]> |

To |
[email protected] |

Subject |
Re: st: Trends and Time dummies |

Date |
Sun, 11 Sep 2011 12:10:46 +0530 |

Hello Vinod I don't think your question is precise enough. What kind of trend and what sort of dummies do you mean? The most obvious situation for each is this: trend: Yt = b0 + b1X t + b2T t + ut, where T is the trend term. This is equivalent to a constant shift (=b2) in the intercept term each period. Now if you add a set of "year dummies" to this, e.g., Yt = b0 + b1X t + b2T t + b3Dt1+ b4Dt2+...DtM +ut, Now I try to give my interpretation of the regressions you mention, as they would be in this sitution: a) first, you obviously cannot have M=N (number of years), i.e. you cannot have a dummy for every year, as that would leave you with negative degrees of freedom! So M<N. Further b) the coefficient of each Di measures the "extra" jump in the intercept beyond the common upward shift=b2 Now if you were to rerun the regression without the trend, the coefficients of the dummies would capture not only the "extra" shift they were earlier capturing, but a part of the shift that was earlier being captured by the trend term. In other words, you would have an omitted variable bias, as you are omitting the trend term. Hope this helps. Partha On Sun, Sep 11, 2011 at 3:12 AM, Venkiteshwaran, Vinod <[email protected]> wrote: > The following question is not really a Stata syntax/programming related but more of a statistical logic type query. > In pooled cross-sectional time series data what is the effect of including both a trend and year dummy variables? > Specifically can the coefficients on the year dummy variables thus obtained be related to a model without the trend but just the year dummies? > Any useful references that I can look up would be extremely helpful. > > Thank you > > Vinod > > > * > * 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/ > * * 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/

**References**:**st: Trends and Time dummies***From:*"Venkiteshwaran, Vinod" <[email protected]>

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