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st: interacted fixed effects
Dear List Members,
I have a panel of bilateral trade data. I want to estimate a model with
importer-year, exporter-year and importer-exporter fixed effects:
Y_ijt = a_it + b_jt + c_ij + d*X_ijt + e_ijt
where i = importer, j = exporter, t = time.
If using dummy variables is not feasible, is it appropriate to demean the data
in the following way:
Y_ijt* = Y_ijt - MeanY_it - MeanY_jt - MeanY_ij + 2*Overall MeanY
(where MeanY_it is Y_ijt avaraged over j) and similarly for X_ijt*, and then
regress Y_ijt* on X_ijt*.
Thank you for your help,
Department of Economics
University of Colorado, Boulder
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