In order to run a two-way fixed effect model, we can use:
A) A de-meaned approach
B) A LSDV approach
C) Both a and b
D) None of the above.

Question

Quizplus · Accepted Answer

Both a de-meaned approach and a LSDV (Least Squares Dummy Variables) approach can be used to run a two-way fixed effect model. The de-meaned approach removes the time fixed effects and the individual fixed effects separately from the original data by subtracting their means. The LSDV approach creates dummy variables for each individual and time period and includes them in the regression as independent variables. Both approaches allow for controlling for the effects of both individual and time-fixed effects, therefore either choice can be used depending on preference or the specific needs of the analysis.

In Order to Run a Two-Way Fixed Effect Model, We