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st: interacted fixed effects

From   Kremena Platikanova <[email protected]>
To   [email protected]
Subject   st: interacted fixed effects
Date   Thu, 27 Apr 2006 00:48:36 -0600

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,

Kremena Platikanova
Ph.D. Candidate
Department of Economics
University of Colorado, Boulder
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