ECON 104 Lecture Notes - Lecture 53: Regression Analysis, Multicollinearity, Shrinkage Estimator
Document Summary
2) using the dataset below, a researcher tries to run several regressions. Ii refers to individual fixed effects and tt refers to time fixed effects. 27 + 28 + 29 -> perfect multicollinearity, won"t work. Adding all of them as dummies would result in perfect multicollinearity (b) explain in detail why the regression kidsit = 1 age27it + 2 age28it + 3 unemployedit. Perfect multicollinearity - time fixed effects with 2 ages. All the people in your dataset who are of age 27 have taken the survey in 2012, and already have the same 4 people, and you interview them 3 times. Since they were 27 in the first year of the survey, they must be 28 the following year. Anyone who belongs to regression in age 27, and when age 27 = 1, this means that t 2012 will definitely be 1.
