st: Use lag operators with interaction term, is it correct?

[Herman Haugland <herman.haugland@gmail.com>]

Hi, a newbie question here:

I have a linear model that I am estimating using FE and RE,  in which
my explanatory (continuous) variable is lagged, something like this:


y = a + bx(t-1) + e

Stata: xtregar y L.variable, fe/re


For my analysis, I need to include a categorical interaction term.
Stata, by using the graphical interface, does not allow me to use lags
with my continuous variable, but it does give me results if I add 'L'
manually, and these are very different to those without the L.

What Stata graphical interface allows me to do is:

xtregar y L.variable dummy#c.variable i.dummy, fe


And what I need is:

xtregar y L.variable dummy#Lc.variable i.dummy, fe


I am confused since I imagine that if adding lags was OK, Stata would
allow me to add them, wouldn't it?

1) Is it correct to add lags to an interaction term?

2) In case of that the answer to (1) is NO: If I remove the variable
(L.variable), is it OK to add lags to the interaction term?


I am using Stata 12.


Thank you for your help.



Herman.
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