Re: st: RE: Your opinion on income groups and inflation

[Andrea Bennett <mac.stata@gmail.com>]

Thank you both for you suggestions! So, I will use NO dummies for  
income since there is no/I have no theoretical expectation that the  
effects should be different within each specific level of income,  
rather I do expect one direction of the effect of income on y, only. I  
might test for an interaction dummy with the highest income class,  
though. In the case of the "trust" variable I will NOT use dummies,  
too (for the above reason).

Many thanks for you little helper!


On Jun 7, 2008, at 7:40 PM, SamL wrote:


> Making ordered categories dummy variables vs. making them one  
> ordered variable by assigning values are both okay.  The dummy  
> variable approach is most flexible, allowing the effect to be  
> different across categories. But, if you have no theoretical  
> expectation for that, nor any reason to believe those particular  
> categorical lines match the lines you'd draw if you could, then I  
> agree with Martin below.
>
> Sam
>
> On Sat, 7 Jun 2008, Martin Weiss wrote:
>
>
> > The obsession with dummies in some posts is a little bewildering.  
> > If you
> > already have an ordered variable recording trust in government it  
> > is hard to
> > see why you would want to throw away this information and let the  
> > resulting
> > dummies eat up your df. Just include the variable in the regression  
> > as it
> > is. If you absolutely want to, -tabulate, generate- could be  
> > helpful. Be
> > sure to omit one dummy in the regression to dodge the famous dummy  
> > trap...
> >
> > Martin Weiss
> > _________________________________________________________________
> >
> > Diplom-Kaufmann Martin Weiss
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> > 72074 Tuebingen
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> >
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> >
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> >
> > SSRN: http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=669945
> >
> > -----Original Message-----
> > From: owner-statalist@hsphsun2.harvard.edu
> > [mailto:owner-statalist@hsphsun2.harvard.edu] On Behalf Of Andrea  
> > Bennett
> > Sent: Saturday, June 07, 2008 7:19 PM
> > To: statalist@hsphsun2.harvard.edu
> > Subject: st: Your opinion on income groups and inflation
> >
> > Dear Statalisters,
> >
> > I wonder what you do think about the following issues:
> >
> > 1.
> > I have a cross-sectional panel data set with a time span of 10 years
> > (5 complete surveys). The survey does NOT ask for (more or less)
> > precise income but instead for income groups (e.g. between 3000 and
> > 4000 $). As this does cluster the income quite a bit I was wondering
> > of how much use it would be to control for the inflation rate (which
> > was rather low, about 1-2% p.a.)? Still, I tend to control for
> > inflation since there is a gradual shift from lower income groups to
> > higher income groups. Would you include the inflation adjustments or
> > not?
> >
> > 2.
> > Do I need to treat these income groups as categorical data and
> > therefore generate dummies for each income category? Do I also need  
> > to
> > control for the highest income group with an additional dummy since  
> > it
> > measures income>=10'000$? This just affects the df quite a bit, I
> > think. How would you deal with such a variable?
> >
> > 3.
> > Related to the above question, I wonder how one usually deals with
> > interval variables. I have a variable measuring the trust/confidence
> > in the national government on a scale of 0-10 (1-point steps). Again,
> > as I have learned it, I would have to include a dummy for each trust-
> > level. Again, losing df is what brings me to ask you again. Do I need
> > to generate dummies here or not?
> >
> >
> > Kind regards and many thanks for your consideration,
> >
> > Andrea
> >
> >
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