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Practical correlation bias correction in two-way fixed effects linear regression
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Authors:
Gaure, Simen
Year:
2014
Reference:
Memorandum
Number in series: 21
Summary
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.
JEL:
: C13, C33, C55, C87
Keywords:
Limited mobility bias, Two way fixed effects, Linear regression
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