Consider the following panel regression model where a, are individual fixed- effects (any heterogeneity in Y₁) that does not vary over time: Yi Bo + B₁X₁ + ai + Uit i. Provide two ways to control for fixed effects a, You should get a model in which a, has disappeared. In both modified models, what are the assump- tions required to interpret 3₁ as a causal parameter?

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Consider the following panel regression model where a, are individual fixed-
effects (any heterogeneity in Y) that does not vary over time:
Yi Bo + B₁X₁ + ai + Uit
i. Provide two ways to control for fixed effects a, You should get a model in
which αi has disappeared. In both modified models, what are the assump-
tions required to interpret B₁ as a causal parameter?
Transcribed Image Text:Consider the following panel regression model where a, are individual fixed- effects (any heterogeneity in Y) that does not vary over time: Yi Bo + B₁X₁ + ai + Uit i. Provide two ways to control for fixed effects a, You should get a model in which αi has disappeared. In both modified models, what are the assump- tions required to interpret B₁ as a causal parameter?
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