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What are fixed effects regression models?

• Fixed Effects Regression Models Data are from the National Longitudinal Study of Youth (NLSY). The data set has 1151 teenage girls who were interviewed annually for 5 years beginning in 1979. The data have already been reshaped and xtset so they can be used for panel data analysis.

Why are fixed effects coefficients biased?

• So, for example, a failure to include income in the model could still cause fixed effects coefficients to be biased. o Allison likes fixed effects models because they are less vulnerable to omitted variable bias.

How do fixed effects models control the effects of time-invariant variables?

• Fixed effects models control for, or partial out, the effects of time-invariant variables with time-invariant effects. This is true whether the variable is explicitly measured or not. Exactly how they do so varies by the statistical technique being used. The optional appendix discusses these methods further.

Do fixed effects models have a large standard error?

• If there is little variability within subjects then the standard errors from fixed effects models may be too large to tolerate. Conversely, random effects models will often have smaller standard errors. But, the trade-off is that their coefficients are more likely to be biased.