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8 votes
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Why we need to control for the interation of year and industry fixed effects?

When you control for not just year fixed effects but instead year-region or year-industry it adds flexibility. The year fixed effects controls in a flexible manner for the time-trend and is more ...
Jesper Hybel's user avatar
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4 votes
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Why we need to add firm and year relating independent variables in two-way fixed effect model?

Consider the following regression specification where, $t$ is time, $c$ is the firm, $y$ is an outcome and $x$ is a variable of interest. $$ y_{c,t} = \alpha + \beta x_{c,t} + \varepsilon_{c,t} $$ ...
tdm's user avatar
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4 votes
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Identification of firm-worker fixed effect wage equation

Think about a regression where you have two factors. Normally when you have a constant in the regression you would put one level of each factor to 0 as a reference level. Leaving out the constant you ...
Jesper Hybel's user avatar
  • 3,466
4 votes

Consistent estimation of fixed effects

Let $i$ index firms and $t$ time. Consider the following type of regression: $$ y_{i,t} = \alpha + \beta_i + X_{i,t}\gamma + \varepsilon_{i,t} $$ where $\beta_i$ are the firm fixed effects and $X_{i,t}...
tdm's user avatar
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4 votes
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Fixed effects vs first difference

I do not think the premise is correct. Following Brüderland and Volker in Best & Wolf The SAGE Handbook of Regression Analysis and Causal Inference [square brackets have my remarks]: Both ...
1muflon1's user avatar
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3 votes

How to get the bias-adjusted variance estimates for high-dimensional fixed effects in a linear model?

I guess this follows from the Frish-Waugh Lovell theorem. If you have $K$ dummies and say $n$ observations, so $F$ is $n \times K$, you need to regress every dummy in $F$ on all variables in $X$ ...
tdm's user avatar
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3 votes
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What are the difference between industry fixed effects and industry*year fixed effects?

What does industry * year fixed effect mean? $Industry \cdot year$ fixed effect is just an interaction term between industry and dummy year variables. For example, you can have dummy particular ...
1muflon1's user avatar
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3 votes
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Clustering of standard errors in Fixed Effects models

Consider the following specification: $$ Y_{i,g} = X_{i,g}\beta + u_{i,g} $$ Where the residuals have different mean across groups and have within group correlation: $$ \begin{align*} &\mathbb{E}(...
tdm's user avatar
  • 12.4k
3 votes

Pooled OLS, fixed effects and random effects yield very similar results

$$y_{it} =\beta_0 +\beta_1 x_{1it} + ...+\beta_k x_{k_it}+\alpha_i +u_{it} $$ The random effects assumption is that $E[\alpha_i +u_{it}|X]=0$ where $X$ denotes all independent variables at all time ...
Michael Gmeiner's user avatar
3 votes
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How to choose between fixed and random effects using economic intuition?

Here is an example where just from an economic perspective fixed effects are better than random effects. Suppose you have panel data and you want to regress earnings $y$ on some observable ...
emeryville's user avatar
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3 votes
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using LOG in a econometric model

The use of the natural $\log$ permits to obtain approximations of percentage changes instead of unit changes (assuming linear regression). For instance, the parameter associated with $\log$ of GDP per ...
rsm's user avatar
  • 124
3 votes

A question about Fixed effects estimation

Having read up on your question it seems the fixed effect is fixed. If this is indeed the case it will have zero variance and hence zero covariance with any variable.
Giskard's user avatar
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3 votes
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Linear Probability Model Instead of Logit in Fixed Effects Regression

FE logit requires the idiosyncratic errors to be IID across $i$ and $t$, quite a strong assumption. Also the regressors should be strictly exogenous, but it's the same for linear FE models. In your ...
chan1142's user avatar
  • 2,114
3 votes
Accepted

What is the difference between fixed effect regression and (panel) fixed effect regression?

Fixed effects regression is one of a broader class of panel econometric methods which take advantage of panel data to difference out unobserved variables which would cause biased estimators in a naive ...
A. Miller's user avatar
  • 151
3 votes

In a one-way fixed effect model, why do we say that the demeaned variable has reduced variation?

I have this derivation typed up as part of a PowerPoint slide. Forgive my laziness, but I'm going to just post an image of that slide.
Michael Gmeiner's user avatar
2 votes

Fixed Effects Estimation and Inconsistency

You can't identify the effect of oil price when Year FE are applied, since the world oil price is perfectly correlated with year Fixed Effects. You can't identify the democracy indicator if you ...
E. Sommer's user avatar
  • 1,325
2 votes

Count panel models for endogenous regressors

Windmeijer (2000, Economics Letters) presents a treatment of the estimation of count-data models with fixed effects and endogeneity. http://www.sciencedirect.com/science/article/pii/...
Roland's user avatar
  • 146
2 votes

Fixed effects, first differences interpretation

The biggest difference between (1) and (3) is that (3) has incidental linear trends while (1) has common time effects. Differencing (1) gives (1a) $\Delta \log(uclms_{it}) = (\theta_t - \theta_{t-1}) ...
chan1142's user avatar
  • 2,114
2 votes

How to interpret fixed effects?

Fixed effects model is estimated as: $$ y_{i t} − \bar{y_i} = ( X_{i t} − \bar{X_i} ) \beta + ( \alpha_i − \bar{\alpha_i} ) + ( u_{it} − \bar{u_i} )$$ So the country fixed effect is always relative ...
csilvia's user avatar
  • 2,734
2 votes

Log log regression with fixed effects and cross elasticity of demand

Note that you have an identification problem here because price is an endogenous variable. A way to deal with this problem would be to find an instrument (e.g. prices of the same good in other ...
emeryville's user avatar
  • 6,975
2 votes

R's felm() fixed effects vs. factor() within lm()

You are correct in noting that, adding factor(FIPS) in side the regression formula should be equivalent to specifiying ...
anguyen1210's user avatar
2 votes
Accepted

Cross validation as a means of validating fixed effects?

How many observations do you have for each household? If it's a small number, then the household FE won't be estimated well. This will "average out" across households, and the estimate of ...
Michael Gmeiner's user avatar
2 votes

Fixed Effects with lagged dependent variable, how is the average calculated?

You have the equation: $$ y_{it} = \delta y_{it-1} + x_{it}'\beta+ \alpha_i + v_{it}. $$ The left hand side runs from $t=2$ to $t = T$ as there is a $y_{it-1}$ on the right hand side. So taking the ...
tdm's user avatar
  • 12.4k
2 votes

Clustering of standard errors in Fixed Effects models

Usually, the conditional mean and the conditional variance of a random variable are independent (of course there are exceptions). While the fixed effects introduce flexibility in the specification of ...
Bertrand's user avatar
  • 3,371
2 votes

Fixed effects vs first difference

Although this conversation is already a bit dated, I want to add a clarification for anyone reading this: FE and FD both effectively use the same amount of information. It can even be shown that a FD-...
Economedian's user avatar
2 votes
Accepted

A revisit to simple DID and Generalised DID

(1) whether we should not run the group and period fixed effect for simple DID because they will swallow the variables $P_t$ and $T_i$ as in the generalized case? In a simple 2 period 2 group ...
tdm's user avatar
  • 12.4k
2 votes

Fixed time effects or fixed individual effects?

Typically, you use both time and individual FE's. Recommended reading- Mostly Harmless Econometrics's setup for panel data Difference-in-Differences (DiD). You may not have a good DiD setup, but it is ...
RegressForward's user avatar
2 votes

Fixed time effects or fixed individual effects?

As RegressForward says, typically it’s good practice to include both time and individual FEs. If one or both matter depends on whether and to what degree observations are correlated within individuals ...
RA334's user avatar
  • 239
2 votes

When should I NOT control for unit-fixed effects?

It is always a good default to include individual fixed effects. If you believe that omitting the individual fixed effect would not induce bias, then you can perform random effects estimation and ...
Michael Gmeiner's user avatar
1 vote
Accepted

How to estimate a subclass effect of fixed effect model?

This is a special case of Hausman and Taylor (1981). See Appendix A.1 Special Cases. Consider the model $y_{it} = \alpha + x_{it}\beta + z_i \gamma + \eta_i + e_{it}$, where $x_{it}$ contains ...
chan1142's user avatar
  • 2,114

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