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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
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    File URL: http://www.sv.uio.no/econ/english/research/unpublished-works/working-papers/pdf-files/2014/memo-21-2014.pdf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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    Cited by:

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    3. 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.

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    More about this item

    Keywords

    Limited mobility bias; Two way fuxed effects; Linear regression;
    All these keywords.

    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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