Arbeitspapier
Fixed Effects and Causal Inference
Across many disciplines, the fixed effects estimator of linear panel data models is the default method to estimate causal effects with nonexperimental data that are not confounded by time-invariant, unit-specific heterogeneity. One feature of the fixed effects estimator, however, is often overlooked in practice: With data over time t ∈ {1,...,T} for each unit of observation i ∈ {1,...,N}, the amount of unobserved heterogeneity the researcher can remove with unit fixed effects is weakly decreasing in T. Put differently, the set of attributes that are time-invariant is not invariant to the length of the panel. We consider several alternatives to the fixed effects estimator with T > 2 when relevant unit-specific heterogeneity is not time-invariant, including existing estimators such as the first-difference, twice first-differenced, and interactive fixed effects estimators. We also introduce several novel algorithms based on rolling estimators. In the situations considered here, there is little to be gained and much to lose by using the fixed effects estimator. We recommend reporting the results from multiple linear panel data estimators in applied research.
- Language
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Englisch
- Bibliographic citation
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Series: IZA Discussion Papers ; No. 16202
- Classification
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Wirtschaft
Single Equation Models; Single Variables: Panel Data Models; Spatio-temporal Models
Model Construction and Estimation
Model Evaluation, Validation, and Selection
- Subject
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panel data
fixed effects
first-differences
interactive fixed effects
unobserved heterogeneity
time-varying individual effects
- Event
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Geistige Schöpfung
- (who)
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Millimet, Daniel L.
Bellemare, Marc
- Event
-
Veröffentlichung
- (who)
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Institute of Labor Economics (IZA)
- (where)
-
Bonn
- (when)
-
2023
- Handle
- Last update
-
10.03.2025, 11:45 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Millimet, Daniel L.
- Bellemare, Marc
- Institute of Labor Economics (IZA)
Time of origin
- 2023
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