Paolo Paruolo, European Commission Joint Research Centre

"Specification tools for time fixed effects in country panels"

Abstract

This paper proposes specification tools for time fixed-effects in country panels, that can guide the specification of the time FE among a set of models including the standard two-way fixed-effect model, and other multi-way fixed effect specifications. The tools are based on the observable characteristics of univariate time series of contrasts implied by a given specification; they use flagging rules based on graphical or statistical analysis. Evidence on which contrasts do not contain time fixed-effects can be harvested by algorithms; this paper discusses two examples of such algorithms. Implications for the specification of Differences in Differences estimation are discussed, and results are illustrated using a country panel of prices of mobile telecommunication services.

Joint with Giulia Canzian and Louis Ronchail

Contact person: Anders Rahbek