RE: st: Interaction terms when one variable is omitted - query

["Mirnezami, Oliver" <O.Y.Mirnezami@warwick.ac.uk>]

Thank you very much for your help Maarten!

-----Original Message-----
From: owner-statalist@hsphsun2.harvard.edu [mailto:owner-statalist@hsphsun2.harvard.edu] On Behalf Of Maarten Buis
Sent: 19 April 2013 09:17
To: statalist@hsphsun2.harvard.edu
Subject: Re: st: Interaction terms when one variable is omitted - query

If you want to know by how much the effect of job_loss differes between those with and without a college degree then you can just interpret your interaction terms as you would in a normal model. In your model you (secretly) included the main effect of college as part of your fixed effects.

Hope this help,
Maarten


On Thu, Apr 18, 2013 at 6:35 PM, Mirnezami, Oliver <O.Y.Mirnezami@warwick.ac.uk> wrote:
> Hello
>
> I have a simple model with an interaction term but one of the covariates is omitted and so I'm not sure how to then interpret the interaction term.
>
> e.g.
>
> health = constant + job_loss_dummy + college_degree_dummy +  
> job_loss_dummy x college_degree_dummy  + other_controls + error term
>
> As this a fixed effects model, the college degree dummy is omitted as it is time-invariant (this uses retirement study data so everyone got their degrees many years ago so it does not change over time within the sample).
>
> The interaction term is significant and the job loss dummy is significant as well.
>
> I would be grateful for any advice on how to interpret the interaction term.
>
> I have looked at various help pages online and textbooks but haven't found an example of this nature where one of the covariates is omitted (in this case due to fixed effects).
>
> Thank you
>
> Oliver
>
>
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Maarten L. Buis
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http://www.maartenbuis.nl
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