st: How to correctly code categorical variables effects in FE/RE model

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

Hi,

I would appreciate help with the following question:

How would you correctly code year effects in Stata?


Suppose I have a panel dataset with 5 individuals and and 32 quarters.
 Meaning 8 years of data.

. xtset id quarters


Suppose that I want to test for the year effects in the regression.
I, so far, have been doing the following:

xtreg y x i.year, fe

But reading here (sorry for citing Wikipedia):
http://en.wikipedia.org/wiki/Categorical_variable#Effects_coding

It seems I am doing it the wrong way.


How would you correctly code categorical variables (year) effects in Stata?


Thanks for your consideration.



Med vennlig hilsen / Best regards,

Herman Haugland
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