Estimating the Missing Intercept

Christian Matthes, Naoya Nagasaka and Felipe Schwartzman
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Felipe Schwartzman: https://www.richmondfed.org/research/people/schwartzman

No 25-12, Working Paper from Federal Reserve Bank of Richmond

Abstract: Cross-sectional data have proven to be increasingly useful for macroeconomic research. However, their use often leads to the 'missing intercept' problem in which aggregate general equilibrium effects and policy responses are absorbed into fixed effects. We present a statistical approach to jointly estimate aggregate and idiosyncratic effects within a panel framework, leveraging identification strategies coming from both cross-sectional or time-series settings. We then apply our methodology to study government spending multipliers (Nakamura and Steinsson, 2014) and wealth effects from stock returns (Chodorow-Reich et al., 2021).

Keywords: Fixed Effects; Aggregate Effects; Government Spending; Regional Data; Bayesian Analysis (search for similar items in EconPapers)
JEL-codes: C11 C50 E62 H50 R12 (search for similar items in EconPapers)
Pages: 69
Date: 2025-10-03
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedrwp:102112

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DOI: 10.21144/wp25-12

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