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.

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