Dear R-helpers,
I have the following model: Return ~ intercept+ EU + AUS + ASIA + USA +
office +
retail + industrial + residential.
The model consist of an intercept ,region- and sector - dummies.
When including all the dummies and the intercept, I will be caught in a so
called "dummy variable trap". This problem is a perfect multicollinearity;
because the regression is not solvable since the X matrix is not fully
ranked.
To estimate the model that includes all dummies variables and the intercept,
I need to imposes two restriction that the sum of the region parameters is
zero and the sum of the sector parameters is zero.
How can I estimate this restricted linear regression model in R?
Is this possible to do this in the lm framework?
Thanks in advance,
Peter
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