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RE: st: Confusion about collinearity
From
"Yarbrough, Kevin T CADET MIL USA USMA" <[email protected]>
To
"[email protected]" <[email protected]>
Subject
RE: st: Confusion about collinearity
Date
Mon, 2 Dec 2013 01:33:36 -0500
See comments below:
>I followed that up with this code to replace the missing values:
>
>replace eitc00=0 if year==2000 & eitc00==.
>If I am reading this code right, then eitc00 still = missing for all
>years other than 2000. That means the regression will only include
>data from 2000. Is this really what you want? How about this instead?
>
>replace eitc00 = 0 if eitc00 == .
Thanks for that. I caught it too and made the change. However, the regressions still have an omitted coefficient on the interaction term because of collinearity.
-----Original Message-----
From: [email protected] [mailto:[email protected]] On Behalf Of Richard Williams
Sent: Monday, December 02, 2013 1:15 AM
To: [email protected]; [email protected]
Subject: Re: st: Confusion about collinearity
See comments below.
At 12:40 AM 12/2/2013, Yarbrough, Kevin T CADET MIL USA USMA wrote:
>I'm having a problem with collinearity in my
>difference-in-differences model. I'm using Stata 12 for Windows.
>
>
>
>I'm using pooled cross section from a 5% sample of ACS data from
>2011 to 2011 across all 50 states and Washington D.C. I'm attempting
>to analyze a policy implementation with the
>difference-in-difference(DID) identification method. 25 states have
>implemented this policy in different years. I'm trying to measure
>the effect on income. From my knowledge, a correct use of DID should
>result in a model: y=B0+B1(Treatment_group)+B2(post-policy year)+
>B3(interaction term of treatment_group and post-policy year).
>
>
>
>I began by creating a dummy variable for each year that equals 1 if
>a state had the program in that year. For example:
>
>gen eitc00=1 if year==2000 & (statefip==08 |statefip==11 |
>statefip==17 |statefip==19 | statefip==20 | statefip==23 |
>statefip==24 |statefip==25 |statefip==27 |statefip==34 |statefip==36
>|statefip==41 | statefip==44 |statefip==50 |statefip==55)
>
>
>
>I followed that up with this code to replace the missing values:
>
>replace eitc00=0 if year==2000 & eitc00==.
If I am reading this code right, then eitc00 still = missing for all
years other than 2000. That means the regression will only include
data from 2000. Is this really what you want? How about this instead?
replace eitc00 = 0 if eitc00 == .
>I then created a dummy variable for years:
>
>gen yr02=year==2002
In 2000, yr02 = 0.
>And the interaction term between the two:
>
>gen eitc00yr02=eitc00*yr02
In 2000, the interaction term = 0. In all other years it is missing
since eitc00 is missing for all years besides 2000.
>My regression is
>
>Reg lnincwage eitc00 yr02 eitc00yr02
In 2000, yr02 and eitc00yr02 both equal 0. All other years get
dropped because eitc00 is missing for all other years.
>Which results in the interaction term being omitted because of
>collinearity. I cannot figure out why.
I'm surprised only the interaction gets dropped.
I may be making a mistake somewhere. But have you run descriptive
statistics on your created vars?
As a sidelight I would use factor variable notation for my
interactions and dummy variables.
-------------------------------------------
Richard Williams, Notre Dame Dept of Sociology
OFFICE: (574)631-6668, (574)631-6463
HOME: (574)289-5227
EMAIL: [email protected]
WWW: http://www.nd.edu/~rwilliam
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