feisr: An R Package for Estimating Fixed Effects Individual Slope Models
Tobias Rüttenauer and
No k4rnu, SocArXiv from Center for Open Science
Fixed effects (FE) panel models have been used extensively in the past, as those models control for all stable heterogeneity between units. Still, the conventional FE estimator relies on the assumption of parallel trends between treated and untreated groups. It returns biased results in the presence of heterogeneous slopes or growth curves that are related to the parameter of interest (e.g., selection into treatment is based on individual growth of the outcome). In this study, we derive the bias in conventional FE models, and introduce the R package feisr for estimating fixed effects individual slope (FEIS) models. This is a more general version of the conventional FE model which overcomes the problem of heterogeneous slopes. Two versions of the Hausman test are proposed that can be used to test for misspecification of FE models due to heterogeneous slopes. The performance of the FEIS estimator and the specification tests are evaluated in a series of Monte Carlo experiments. In conclusion, we propose to test for a bias of FE models in practical applications and apply FEIS if indicated by the specification tests.
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