When one uses within-group differences in variables to estimate parameters in the data generating process, you are using what approach?
A) Two-stage least squares
B) Nonlinear least squares
C) Within estimation
D) Time trends

Question

Quizplus · Accepted Answer

The approach described in the question is known as within estimation or fixed effects regression. It involves estimating parameters based on differences between observations within groups (such as individuals or countries) rather than between groups. This approach can help control for unobserved heterogeneity across groups, but it assumes that all time-invariant characteristics of individuals are captured by the within-group differences.

When One Uses Within-Group Differences in Variables to Estimate Parameters