Panel Fixed Effects Model

The panel fixed effects model is a regression for repeated observations of the same units that removes all time-invariant unit characteristics by estimating effects only from within-unit variation over time.

패널 고정효과모형은 동일한 단위를 반복 관측한 자료에서 단위 내 시간적 변동만을 이용해 효과를 추정함으로써 시간에 따라 변하지 않는 단위 특성을 모두 제거하는 회귀모형이다.

How do I control for unobserved differences between units in panel data?

패널 자료에서 관측되지 않은 단위 간 차이를 어떻게 통제하나요?

A fixed effects (within) estimator demeans each variable within each unit, so stable unobserved characteristics of the units cannot bias the coefficients. It fits panel data on firms, regions, or people observed over several periods when unobserved unit traits may be correlated with the predictors.

When to use Panel Fixed Effects Model

• The same units such as firms, regions, or people observed over several periods
• Concern that stable unobserved unit characteristics confound the predictors
• Adding time fixed effects to absorb common shocks (two-way fixed effects)

When to use something else

• Effects of time-invariant predictors are needed and unit effects are uncorrelated with predictors: use a random effects model (compare with a Hausman test)
• The model includes a lagged dependent variable in a short panel: use Arellano-Bond GMM

Assumptions and requirements

• Strict exogeneity of predictors conditional on unit effects
• Predictors vary within units over time
• Standard errors clustered by unit to allow serial correlation and heteroscedasticity
• No time-varying unobserved confounders

What the analysis reports

• Within-unit coefficients with cluster-robust standard errors
• Within R²
• F test that unit fixed effects are jointly zero
• Hausman test comparing fixed and random effects

How to report it

In the unit and year fixed effects model, [predictor] was positively associated with [outcome], b = [value], cluster-robust SE = [value], p = [value].

Related methods

• Random Effects Model
• Difference in Differences (DiD)
• Dynamic Panel Data (Arellano-Bond)

Run Panel Fixed Effects Model on Quorant