Re: st: Xtivreg2: Dropping dummy variables due to Collinearity

[Maarten Buis <maartenlbuis@gmail.com>]

On Tue, Jun 14, 2011 at 3:27 PM, vikramfinavker wrote:
> I am using xtivreg2 and the regression is dropping my dummy variables for
> year due to collinerarity. I have 10 year dummy:

> In normal regression (reg) it omits yr99 and yr00 saying there is
> collinearity but in xtivreg2 it drops yr99 and yr09 saying they are
> collinear.
>
> Could someone please explain me whats wrong here? Is it my data?

When a set of variables are perfectly colinear Stata cannot
distinguish between them, so it is pretty much random which variables
it will exclude. For predictions it won't matter (which is why Stata
cannot distinguish between them), but for interpretation of your
results it matters a lot. A computer cannot know how you want to
interpret your results. So if you don't tell it, the computer must
ignore that consideration. So, you must tell Stata how you want to
interpret your year dummies. Dummies are (usually, but there are
exceptions) comparisons of groups in your case years, so you must tell
Stata which year you want to compare with which other year. You
typically do so by leaving out one year dummy, which is the reference
category (but there are other ways of doing it). All remaining year
dummies are comparison with that reference category.

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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