What should be the degrees of freedom (df) for fixed effects estimation if the data set includes 'N' cross sectional units over 'T' time periods and the regression model has 'k' independent variables?
A)N-kT
B)NT-k
C)NT-N-k
D)N-T-k

Question

Quizplus · Accepted Answer

The degrees of freedom for fixed effects estimation are calculated as (NT - N - k). NT represents the total number of observations, N represents the number of cross-sectional units and T represents the number of time periods, and k represents the number of independent variables. The term N represents the number of fixed effects in the model, and subtracting it from the total number of observations (NT) gives us the within-group degrees of freedom. Finally, we subtract the number of independent variables (k) to account for the parameters being estimated in the model. Therefore, the correct formula for degrees of freedom for fixed effects estimation is (NT - N - k).

What Should Be the Degrees of Freedom (Df) for Fixed