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st: re: two-way fixed effects

From   Christopher Baum <>
Subject   st: re: two-way fixed effects
Date   Tue, 24 Jun 2008 17:57:14 -0400

< >
David is right on in suggesting that adding time dummies to xtreg, fe is the best way to implement two-way fixed effects. But

"The larger t-statistic you mention probably stems from greater multicollinearity in a two- rather than a one-way fixed-effects model."

doesn't make much sense, as collinearity inflates standard errors and reduces t-stats, not the opposite.

Kit Baum, Boston College Economics and DIW Berlin
An Introduction to Modern Econometrics Using Stata:

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