Hi all,
I am running the following regression using reghdfe written by @Sergio Correia:
reghdfe f.Dependent U c.U#c.Q Q $xlist i.year, absorb(firmcode) vce(cluster firmcode year)
where the dependent variable is the firm’s debt ratio and U and Q are my variables of interest and are constant for all firms in a year, and as you know, c.U#c.Q is the interaction between U and Q. I have 20 years of unbalanced data for 5123 firms.
When I run my regression, one-third of the year dummies (the latest years) will be omitted because of collinearity; they will be only omitted when I add U, Q or their interaction.
Would this assumption be correct that because I put the i.year at the end after all other variables, Stata will automatically only absorb the part of the year fixed effect that has not been already absorbed by the U or Q variables (or the other annual macro variables like GDP)? Or would U and Q be fully absorbed by the year fixed effect?
I appreciate your help.
Thank you.
Mona
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