Consider a panel regression of unemployment rates for the G7 countries (United States, Canada, France, Germany, Italy, United Kingdom, Japan)on a set of explanatory variables for the time period 1980-2000 (annual data). If you included entity and time fixed effects, you would need to specify the following number of binary variables:
A)21.
B)6.
C)28.
D)26.

Question

Quizplus · Accepted Answer

To include entity and time fixed effects, we need to include binary variables for each entity (country) and each time period (year). There are 7 countries and 21 years in the given time period, thus the total number of binary variables required will be 7+21=28. Option D is the closest choice to this number.

Consider a Panel Regression of Unemployment Rates for the G7