[R] Dummy variables model

Tobias Muhlhofer t.muhlhofer at lse.ac.uk
Mon Sep 5 15:03:33 CEST 2005

Hi, all!

Anyone know an easy way to specify the following model.

Panel dataset, with stock through time, by firm.

I want to run a model of y on a bunch of explanatory variables, and one 
dummy for each firm, which is 1 for observations that come from firm i, 
and 0 everywhere else. I have over 200 firms (and a factor variable that 
  contains a firm identifier).

Any easy way of going about this, without having to define all these 
dummies? I checked lme() with random = ~ 1|firm, but the problem is that 
these are random effects, i.e. that there are firm-by-firm disturbance 
terms and overall disturbance terms, whereas I want just overall 
disturbance terms. This is generally called a "fixed effects" model, 
although it seems like the term "fixed effects" is being used somewhat 
differently in the context of the nlme package.


When Thomas Edison invented the light bulb he tried over 2000
experiments before he got it to work. A young reporter asked
him how it felt to have failed so many times. He said
"I never failed once. I invented the light bulb.
It just happened to be a 2000-step process."

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