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If yes, then how does this square with the general point that causality/exclusion cannot generally be established with statistical tests... It seems to me that "[exogeneity of IV] cannot generally be established with statistical tests" does not imply that it cannot be tested in specific cases. In this (very specific) context, the exogeneity claim ...


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Depends on what the dummies are and what is the specification of the model you are using. When you multiply two dummies you are creating what is called an interaction term. Generally speaking you can include interaction terms in panel data. In fact the widely used differences-in-differences (DiD) estimator relies on it. A DiD can be specified as (see Mostly ...


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Yes, it is acceptable. Consider a Mincer wage equation. Let's define a dummy variable Female taking on the value one for females and the value zero for males and a dummy variable Married to equal one if a person is married and zero if otherwise. Then, you can estimate a model that allows for wage differences among four groups: married men, married women, ...


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