restriction on coefficient for dummy variables in linear OLS

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lmh
Posts: 2
Joined: Mon Dec 06, 2010 5:58 am

restriction on coefficient for dummy variables in linear OLS

Postby lmh » Sun Dec 12, 2010 9:07 am

Hi,

I am currently having issue in running a linear OLS by setting the restriction on the coefficient.
Appreciate if someone would be able to assist. I using E-view 7 at the moment.

Equation: y = c + B1X1 + B2X2 + B3X3+ B4X4 + B5X5 + e
X are dummy variable and B is the coefficient for X dummy variable respectively,
while e is error term.
My target is to run the above regression in programming by Restricting B1*W1 + B2*W2 + B3*W3 + B4*W4 +B5*W5 = 0.
#W refers to weight.

Appreciate if someone familiar with this offers some advices and guidance.
Thanks a million in advance.

startz
Non-normality and collinearity are NOT problems!
Posts: 3797
Joined: Wed Sep 17, 2008 2:25 pm

Re: restriction on coefficient for dummy variables in linear OLS

Postby startz » Sun Dec 12, 2010 9:11 am

Solve the restriction to place B5, say, on the left. Then substitute in to the original equation, replacing B5 with your expression.

lmh
Posts: 2
Joined: Mon Dec 06, 2010 5:58 am

Re: restriction on coefficient for dummy variables in linear OLS

Postby lmh » Mon Jan 03, 2011 7:11 am

Thanks startz for your suggestion.
Just to confirm by doing so, i would lost the coefficient, B5 from the original equation as it has been substituted by the restricting equation. After the estimation, i would only obtain a constant, B1, B2, B3, B4 and an error term.
y = c + B1X1 + B2X2 + B3X3+ B4X4 + B5X5 + e

Is it possible that i could estimate the above equation and obtain the coefficients for all variables?

Thank you.

EViews Gareth
Fe ddaethom, fe welon, fe amcangyfrifon
Posts: 13603
Joined: Tue Sep 16, 2008 5:38 pm

Re: restriction on coefficient for dummy variables in linear OLS

Postby EViews Gareth » Mon Jan 03, 2011 8:51 am

The point is that in your original equation you don't really have a B5. You've restricted it away.


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