Dummy Coefficient Restrictions to avoid near singular matrix

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Capaw
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Joined: Tue May 06, 2014 4:40 am

Dummy Coefficient Restrictions to avoid near singular matrix

Postby Capaw » Tue May 06, 2014 4:54 am

We are trying to run a OLS regression (panel data), amongst our variables are several dummies. We are looking at investment returns across 4 different countries, and we want to see if there are any differences in return in across them. Thus we have created a dummy that takes the value of 1 if a investment is done in country A and 0 otherwise, this is also done for country B,C and D.


If we include all 4 dummies, eviews tells us we have a near singular matrix. Thus, we dropped one of the dummies (e.g country A) and then is works just fine. However, we don't want country A to be soaked up in the intercept, and we have been told that if we restrict the dummy coefficients we can include all 4 without creating a near singular matrix. The restriction we want to impose is QA+QB+QC+QD=0 where Q is the dummy coefficient and A,B,C,D are the respective countries, how do i do this in eviews?

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