Well, you can't have 17 year dummies and "two dummy variables, one of
which is set to one for all observations after 1994 and the other set
to one after 1998." Try testing groups of year dummies to see if they
differ significantly. With appropriate adjustments for data mining
and multiple testing, of course.
-----Original Message-----
From: Hoetker, Glenn [mailto:[email protected]]
Sent: Wednesday, July 27, 2005 5:34 PM
I have panel data from 1986-2003. Logic and examining the data suggest
that the dependent variable increased monotonically over time. Because I
have some time-invariant variables, I am using random-effects (Hausman
test indicates this is okay). What are the relative merits of either:
a. Including a YEAR variable, which will range from 1985 to 2003 in
value, or
b. Including 7 dummies, one for each year (except the omitted year)
Possibly complicating the issue (or not), I have two dummy variables,
one of which is set to one for all observations after 1994 and the other
set to one after 1998. I have 47 observations per year, so degrees of
freedom are not critical.
I have found little guidance in my standard texts. Thank you for any
guidance &/or references.
Glenn
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