Re: st: state trends

[Maarten buis <maartenbuis@yahoo.co.uk>]

--- On Tue, 19/10/10, sara borelli wrote:
> when using the orginal year variable I have that for each
> state there is a perfect correlation between 
> state dummy, trendstate, trandsquare_state  when these
> are constructed by using the orginal year variable
> 
> when I look at the correlation between the same variables
> constructed using the rescaled year variable then the
> correlation is very high but not perfect.

We use the non-linearity of the relationship between a 
variable and its square to identify the parameter for each.
This is another way of saying that the correlation, which
measures the strength of the linear relationship, must not
be exactly 1 or -1. However, the function x2 = x^2 is almost
linear in the range 1990 - 2010, which is why you get your 
multicolinearity problem, but non-linear in the range 1-20, 
which is why you can estimate your model in that case.

Hope this helps,
Maarten

--------------------------
Maarten L. Buis
Institut fuer Soziologie
Universitaet Tuebingen
Wilhelmstrasse 36
72074 Tuebingen
Germany

http://www.maartenbuis.nl
--------------------------


      

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