Dear Statalist,
I estimate a log-log model with interaction term of the following form:
lnY = b0 + b1lnX + b2lnZ + b3lnX*lnZ + e
I want to test whether X and Z have a nonlinear effect on Y. Therefore, I add squared terms of X and Z to the model. When I estimate this model STATA drops X and Z from the model due to multicollinearity. The correlation coefficients between the unsquared and squared terms are very high (> 0,96).
I have some problems interpreting this result. Does this mean that there is no non-linear effect?
Best regards
Phil
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