Given the role of cross sectional fixed effects in the empirical strategy for identifying causal effects, instead of conducting hypothesis tests of any one coefficient on a fixed effect being zero, it is typical to conduct what sort of hypothesis test?
A) A hypothesis test for a fixed effect coefficient being equal to 1 instead of zero.
B) A hypothesis test for a fixed effect coefficient being equal to -1 instead of zero.
C) A joint hypothesis test for all of the fixed effect coefficients being equal to zero.
D) A joint hypothesis test that the fixed effect coefficients are all equal to the treatment effect.

Question

Quizplus · Accepted Answer

Conducting a joint hypothesis test for all of the fixed effect coefficients being equal to zero is typical in the empirical strategy for identifying causal effects. This tests whether the fixed effects are jointly significant in explaining the outcome variable. Hypothesis tests for individual fixed effect coefficients being equal to specific values (such as zero, one, or negative one) are not typically conducted because the interpretation of these coefficients can be complex and not directly related to the research question at hand. Hypothesis tests that the fixed effect coefficients are all equal to the treatment effect are also not typical, as the fixed effects are not usually interpreted as measures of treatment effects.

Given the Role of Cross Sectional Fixed Effects in the Empirical