How is the time-invariant independent variables and the unmeasured time-invariant variables captured in a fixed effects model?
A) By running an ordinary least squares regression
B) By running an ordinary least squares regression with robust standard errors
C) By taking the mean of each variable for each unit across time, and running a regression on the collapsed dataset of means
D) By including unit dummy variables

Question

Quizplus · Accepted Answer

Fixed effects models capture time-invariant characteristics by including unit dummy variables, which control for all unobserved, time-invariant differences between units.

How Is the Time-Invariant Independent Variables and the Unmeasured Time-Invariant