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Practical Correlation Bias Correction in Two-way Fixed Effects Linear Regression

Author

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  • Gaure, Simen

    () (The Ragnar Frisch Centre for Economic Research, Oslo, Norway)

Abstract

When doing two-way fixed effects OLS estimations, both the variances and covariance of the fixed effects are biased. A formula for a bias correction is known, but in large datasets it involves inverses of impractically large matrices. We detail how to compute the bias correction in this case.

Suggested Citation

  • Gaure, Simen, 2014. "Practical Correlation Bias Correction in Two-way Fixed Effects Linear Regression," Memorandum 21/2014, Oslo University, Department of Economics.
  • Handle: RePEc:hhs:osloec:2014_021
    as

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    File URL: http://www.sv.uio.no/econ/english/research/unpublished-works/working-papers/pdf-files/2014/memo-21-2014.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. David Card & Ana Rute Cardoso & Joerg Heining & Patrick Kline, 2018. "Firms and Labor Market Inequality: Evidence and Some Theory," Journal of Labor Economics, University of Chicago Press, vol. 36(S1), pages 13-70.
    2. Paul Anand & Jere R. Behrman & Hai-Anh H. Dang & Sam Jones, 2018. "Inequality of opportunity in education: Accounting for the contributions of Sibs, schools and sorting across East Africa," Working Papers 480, ECINEQ, Society for the Study of Economic Inequality.
    3. Sacarny, Adam, 2018. "Adoption and learning across hospitals: The case of a revenue-generating practice," Journal of Health Economics, Elsevier, vol. 60(C), pages 142-164.

    More about this item

    Keywords

    Limited mobility bias; Two way fuxed effects; Linear regression;

    JEL classification:

    • A19 - General Economics and Teaching - - General Economics - - - Other
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • C87 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Econometric Software

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