Fixed-effects models
A)remove the time-variant component of the error term.
B)remove the time-invariant component of the error term.
C)work by first-differencing the data.
D)remove the heteroskedasticity in the data.

Question

Quizplus · Accepted Answer

Fixed-effects models remove the time-invariant component of the error term, also known as individual-specific effects, by including individual-specific dummy variables in the regression equation. This allows us to isolate the effect of time-varying independent variables on the outcome variable. It does not remove heteroskedasticity or involve first-differencing the data.

Fixed-Effects Models