Practical Correlation Bias Correction in Two-way Fixed Effects Linear Regression

Simen Gaure

Memo 21/2014

 

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.

Memo pdf

Published Oct. 20, 2014 12:43 PM - Last modified Jan. 24, 2019 11:44 AM