Which of the following is a reason why fixed effect models can't estimate coefficients on variables that do not vary within unit?
A) Because no fixed effects exists in such a case.
B) The de-meaned variables will not vary.
C) We can estimate such a variable with fixed effects.
D) The errors will be homoscedastic.

Question

Quizplus · Accepted Answer

Fixed effects models remove the within-unit variation by subtracting the unit-specific mean from each observation. If a variable does not vary within a unit, its de-meaned value will be constant, and it cannot be used to explain the variation in the dependent variable. Therefore, fixed effects models cannot estimate coefficients on such variables.

Which of the Following Is a Reason Why Fixed Effect