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02-09-2016 04:43 PM

Hi Everyone,

I am using proc surveyreg on an unbalanced panel data. Here is my model:

Y = X1 + X2 + X3 + C + X1*X2 + X1*X3 + X2*X3 + X1*X2*X3 (no intercept)

where.

X1 and X2 are dummy variables

X3 is Continous Variable

C are Control Variables

If I create percentile based on X3 (Low. medium, & high), and I want to find the interaction between X1, X2, & X3, how would I do that? More specifically, do I still include the continous variable X3 and then have dummy variables for percentile values, such LowX3, MedX3, and HighX3? What about the interaction term?

Thanks for your suggestion,

The rock

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Solution

02-10-2016
03:40 PM

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02-09-2016 07:42 PM

The one i mentioned would allow different X3 slopes for different X3 percentile values. Which one is better? I would start with the model you proposed and add additional complexity such as the terms included in the model i mentioned to see if they add any significant value in terms of goodness-of-fit or validation using a holdout data. Typically, however, the simplier the model, the better.

Cheers

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02-09-2016 05:16 PM

I think you should include X3 in addition to the percentile dummies. You can test X3 to see if it is significant after inlcuding the percentile dummies. Also interations are possible predictors to be considered if data shows different slop of X3 for each percentile value.

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02-09-2016 05:23 PM

So how would you actually model it?

Thanks!

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02-09-2016 07:09 PM

you would need 2 dummy variables for the percenticle values: LowX3 and MedX3 (or whichever 2 you pick). X3 with high percentile values can be represented by setting LowX3 = MedX3 = 0.

original model

X1 + X2 + X3 + C + X1*X2 + X1*X3 + X2*X3 + X1*X2*X3

New model

X1 + X2 + X3 + C + X1*X2 + X1*X3 + X2*X3 + X1*X2*X3

+ LowX3 + MedX3

+ X1*LowX3*X3 + X1*MedX3*X3 + X2*LowX3*X3 + X2*MedX3*X3

+ X1*X2*X3*LowX3 + X1*X2*X3*MedX3

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02-09-2016 07:15 PM

Thanks for quick reply. A question:

What would the difference be between the one you mentioned and this one:

New model

X1 + X2 + X3 + C + X1*X2 + LowX3 + MedX3

+ X1*LowX3 + X1*MedX3 + X2*LowX3 + X2*MedX3

+ X1*X2*LowX3 + X1*X2*MedX3

Which one is better?

Thanks so much!

Solution

02-10-2016
03:40 PM

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02-09-2016 07:42 PM

The one i mentioned would allow different X3 slopes for different X3 percentile values. Which one is better? I would start with the model you proposed and add additional complexity such as the terms included in the model i mentioned to see if they add any significant value in terms of goodness-of-fit or validation using a holdout data. Typically, however, the simplier the model, the better.

Cheers