<p>Shock should be shifting your intercept. If you are doing a dummy for shock you would have one line when shock is zero and one where it is 1. Either case your slope remains same but only y-intercept changes. Could you edit the question to reflect what your end goal is? </p>

CC BY-SA 4.0
2019-10-15T19:48:14.713Z
2019-10-15T19:48:14.713Z
Rumi
<p>I have the following regression (pooled OLS; panel data):</p>

<pre><code>Y  Treated Shock Shock*Treated {with industry and year fixed effects}
</code></pre>

<p>Y is a continuous variable, “Treated” is a count variable between 1 and 10, which does not change within the years. “Shock” is equal to 1 if year>1995 and zero otherwise. “Shock<em>Treated” is multiplication of Shock</em>Treated. Below I provide you with the example of how data looks like for 1 firm:</p>

<p><a href="https://i.sstatic.net/LU8AC.png" rel="nofollow noreferrer"><img src="https://i.sstatic.net/LU8AC.png" alt="enter image description here"></a></p>

<p>Once I run the regression above the results omit “Shock” variable. I guess the problem is that I include year and industry fixed effects. Shall I control just for the industry fixed effect?  I simply dont know which fixed effects (dummies for years and industry) to include so that all the variables remain (i.e, not dropped after I run the regression</p>

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2019-10-15T18:52:20.780Z
It is likely no one will be able to tell you what to do without knowing what your goal is. However unless treated is always 10 when Shock is 1, this does not seem to be multicollinearity.
Giskard
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2019-10-15T18:54:01.353Z
What exactly do you mean by year fixed effects? Dummy variables for each year?
Giskard
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2019-10-15T18:54:13.607Z
Thank you for your reply. I simply dont know which fixed effects to include so that all the variables remain (i.e, not dropped after I run the regression
Alberto Alvarez
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2019-10-15T18:54:57.427Z
Fixed effects - dummies for each year and for each industry
Alberto Alvarez
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2019-10-15T18:56:22.487Z
Shock is quite clearly 1 - the sum of the before 1995 year dummies, so you cannot include those and schock as well.
Giskard
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2020-11-09T11:23:47.657Z
The information you give does not allow to answer your question. It the shock is the same for all firms in your sample, it is indeed perfectly colinear with the 8 regressors of your time dummies
Bertrand
<econometrics><regression><statistics>
Running a regression to avoid multicollinearity
Alberto Alvarez
# Running a regression to avoid multicollinearity

(Asked by: username_0 on 2019-10-15)

I have the following regression (pooled OLS; panel data):
Y  Treated Shock Shock*Treated {with industry and year fixed effects}

Y is a continuous variable, “Treated” is a count variable between 1 and 10, which does not change within the years. “Shock” is equal to 1 if year>1995 and zero otherwise. “ShockTreated” is multiplication of ShockTreated. Below I provide you with the example of how data looks like for 1 firm:

Once I run the regression above the results omit “Shock” variable. I guess the problem is that I include year and industry fixed effects. Shall I control just for the industry fixed effect?  I simply dont know which fixed effects (dummies for years and industry) to include so that all the variables remain (i.e, not dropped after I run the regression

**Tags:** econometrics, regression, statistics
> **Comments:**
> **username_1**: It is likely no one will be able to tell you what to do without knowing what your goal is. However unless treated is always 10 when Shock is 1, this does not seem to be multicollinearity.  
> **username_1**: What exactly do you mean by year fixed effects? Dummy variables for each year?  
> **username_0**: Thank you for your reply. I simply dont know which fixed effects to include so that all the variables remain (i.e, not dropped after I run the regression  
> **username_0**: Fixed effects - dummies for each year and for each industry  
> **username_1**: Shock is quite clearly 1 - the sum of the before 1995 year dummies, so you cannot include those and schock as well.  
> **username_2**: The information you give does not allow to answer your question. It the shock is the same for all firms in your sample, it is indeed perfectly colinear with the 8 regressors of your time dummies  

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## 1 answers

### Answer by username_3 on 2019-10-15. Score: 0

Shock should be shifting your intercept. If you are doing a dummy for shock you would have one line when shock is zero and one where it is 1. Either case your slope remains same but only y-intercept changes. Could you edit the question to reflect what your end goal is?


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