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st: Re: two-level fixed effects

From   Christopher F Baum <>
Subject   st: Re: two-level fixed effects
Date   Wed, 24 Sep 2003 06:40:58 -0400

On Wednesday, September 24, 2003, at 02:33 AM, Robert wrote:

I have a large dataset that includes hundreds of thousands of individuals in
over 1,200 different schools each observed for up to 6 time periods. I
would like to estimate a model with individual and school fixed effects. Is
there anyway to control for school fixed effects without adding over 1,200
dummy variables (I don't think Stata will invert a matrix that large).
Why can't you just apply the fixed-effects transformation "by hand" for the schools? That is, compute (y_{s,t} - y_sbar), where y_sbar is the average value of y over that school's six observations, and likewise for each x? Those data could then be used as 'raw' data for the fixed-effects model at the individual level.

That said, this sounds like a multilevel model, and some of the techniques specifically designed for multilevel modeling may be more appropriate than a two-level fixed effects model.


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