Austin, thanks for your quick reply. As to interacting the GDP variable, I
had thought of this option also, but believe that no sound reasoning can
support such modelling.
Regards,
J Andr�
-----Original Message-----
From: [email protected]
[mailto:[email protected]] On Behalf Of Austin Nichols
Sent: 11 February 2006 19:43
To: [email protected]
Subject: Re: st: GDP variable in panel data
If you are wedded to fixed effects, you have no choice--you can't include
year dummies and any variable that varies only by year (not by company).
I'm inclined to think that's the way to go, but I have no idea what the
distribution of your dependent variable looks like (remember fixed effects
means that every company has the same slope for every variable, but differ
only in their constant terms, so you are sort of running OLS for each
company and constraining the coefficients to be identical across firms--if
your data or theory don't match this description, you should rethink your
strategy). As for including the dGDP variable, you could interact it with
something that varies by company, if you have a theoretical reason that the
impact differs by some other trait of companies...
On 2/11/06, Julius Fr�d�ric Andr� <[email protected]> wrote:
> I am using a fixed-effects panel data regression model on a balanced
> panel of 110 firms observed for 12 years, all are in the same country.
> The dependent variable is an insolvency predictor for the respective
> firm in the respective year, the independent variables are a time
> dummy, to evaluate the effect of enactment of a certain law, and other
> controlling variables unrelated to the time period.
>
> As one of the controlling variables, I believe that the general
> economic situation in that country, as expressed by the GDP growth
> rate, has an influence on the insolvency predictor, i.e. the dependent
> variable, and therefore include a variable containing the growth rate
> for the 12 years under observation. Since all firms are situated in
> the same country, these
> 12 values for GDP growth rate are of course the same for all 110
> firms. I include the GDP variable to control for influence outside the
> law effect that I am researching on using the time dummy and am not
> particularly interested in its coefficient.
>
> My question: Is it sensible to include the GDP growth rate variable
> (which turns out to be significant in the regression model), or is
> this merely a year dummy, since it is the same for all firms? Should
> it therefore be left out?
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