What Do We Get from Two-Way Fixed Effects Regressions? Implications from Numerical Equivalence
◈ 주 제 : What Do We Get from Two-Way Fixed Effects Regressions? Implications from Numerical Equivalence
◈ 발표자 : Shoya Ishimaru (Hitotsubashi)
◈ 일 시 : 2024년 9월 11일 수요일 16:30 ~ 17:45
◈ 장 소 : 우석경제관(223동) 405호
◈ 주 관 : 경제학부, 경제연구소 한국경제혁신센터, SSK, BK21
What Do We Get from Two-Way Fixed Effects Regressions? Implications from Numerical Equivalence
Abstract:
In any multiperiod panel, a two-way fixed effects (TWFE) regression is numerically equivalent to a first-difference (FD) regression that pools all possible between-period gaps. Building on this observation, this paper develops numerical and causal interpretations of the TWFE coefficient. At the sample level, the TWFE coefficient is a weighted average of FD coefficients with different between-period gaps. This decomposition is useful for assessing the source of identifying variation for the TWFE coefficient. At the population level, a causal interpretation of the TWFE coefficient requires a common trends assumption for any between-period gap, and the assumption has to be conditional on changes in time-varying covariates. I propose a natural generalization of the TWFE estimator that can relax these requirements.