Fixed Effects Regression
Controlling for unobserved variables with panel data and entity fixed effects
Fixed effect regression helps in reducing omitted variable bias. As we are likely to be limited in our data collection, fixed effect regression allows controlling variables that we even don't observe!
We can do this when we track data over the same individuals (or entities), i.e., a panel data, over multiple time point.
This notes will also show the intuition behind the scene.
Why Fixed Effects?
The omitted variable bias problem and why we can use fixed effects
What's Going On Behind the Scene
Within variation, between variation, and how demeaning reveals the true relationship
Interpreting the Results
Reading coefficients, understanding what fixed effects can and cannot tell you, and common pitfalls
Time Fixed Effects & Two-Way FE
Controlling for common time shocks with time fixed effects and combining entity and time FE
References & Further Reading
Books, articles, and resources to deepen your understanding