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The Empirical Trap of Sign Reversals with Equality Restrictions

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  • Stephen E. Haynes

    () (Department of Economics, University of Oregon)

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    Abstract

    This note explores the insidious empirical trap posed by two common equality restrictions in regression analysis. The trap is that restricted coefficients can lie outside the interval of unrestricted coefficients and even reverse sign when negatively correlated regressors are added to one another or when positively correlated regressors are subtracted from one another.

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    File URL: http://economics.uoregon.edu/papers/UO-2005-8_Haynes_Reversals.pdf
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    Bibliographic Info

    Paper provided by University of Oregon Economics Department in its series University of Oregon Economics Department Working Papers with number 2005-8.

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    Length: 11
    Date of creation: 15 Jan 2005
    Date of revision:
    Handle: RePEc:ore:uoecwp:2005-8

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    Keywords: Equality restrictions; Sign reversals; Invalid restrictions;

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    1. Frankel, Jeffrey A, 1979. "On the Mark: A Theory of Floating Exchange Rates Based on Real Interest Differentials," American Economic Review, American Economic Association, vol. 69(4), pages 610-22, September.
    2. Bruce A. Blonigen & Ronald B. Davies & Keith Head, 2002. "Estimating The Knowledge-Capital Model of the Multinational Enterprise: Comment," University of Oregon Economics Department Working Papers 2002-13, University of Oregon Economics Department, revised 01 Mar 2002.
    3. David L. Carr & James R. Markusen & Keith E. Maskus, 1998. "Estimating the Knowledge-Capital Model of the Multinational Enterprise," NBER Working Papers 6773, National Bureau of Economic Research, Inc.
    4. Modigliani, Franco & Sterling, Arlie, 1986. "Government Debt, Government Spending and Private Sector Behavior: Comment," American Economic Review, American Economic Association, vol. 76(5), pages 1168-79, December.
    5. Barth, James R & Iden, George & Russek, Frank S, 1986. "Government Debt, Government Spending, and Private Sector Behavior: Comment," American Economic Review, American Economic Association, vol. 76(5), pages 1158-67, December.
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