A Linear Panel Model with Heterogeneous Coefficients and Variation in Exposure

Liyang Sun and Jesse Shapiro

No 29976, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Linear panel models featuring unit and time fixed effects appear in many areas of empirical economics. An active literature studies the interpretation of the ordinary least squares estimator of the model, commonly called the two-way fixed effects (TWFE) estimator, in the presence of unmodeled coefficient heterogeneity. We illustrate some implications for the case where the research design takes advantage of variation across units (say, US states) in exposure to some treatment (say, a policy change). In this case, the TWFE can fail to estimate the average (or even a weighted average) of the units' coefficients. Under some conditions, there exists no estimator that is guaranteed to estimate even a weighted average. Building on the literature, we note that when there is a unit totally unaffected by treatment, it is possible to estimate an average effect by replacing the TWFE with an average of difference-in-differences estimators.

JEL-codes: C23 C87 (search for similar items in EconPapers)
Date: 2022-04
New Economics Papers: this item is included in nep-ecm
Note: TWP
References: Add references at CitEc
Citations: View citations in EconPapers (9)

Published as Liyang Sun & Jesse M. Shapiro, 2022. "A Linear Panel Model with Heterogeneous Coefficients and Variation in Exposure," Journal of Economic Perspectives, vol 36(4), pages 193-204.

Downloads: (external link)
http://www.nber.org/papers/w29976.pdf (application/pdf)

Related works:
Journal Article: A Linear Panel Model with Heterogeneous Coefficients and Variation in Exposure (2022)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:29976

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w29976

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().