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DOC: fix link and display of fractions
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jeffgortmaker committed Jun 17, 2018
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2 changes: 1 addition & 1 deletion docs/background.rst
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Expand Up @@ -228,7 +228,7 @@ Fixed Effect Absorption

One way to include demand-side fixed effects is to construct a large number of indicator variables and include them in :math:`X_1` and :math:`Z_D`. Similarly, indicator variables can be added to :math:`X_3` and :math:`Z_S` to incorporate supply-side fixed effects. However, this approach becomes infeasible when there are a large amount of data or a large number of fixed effects because estimation with many indicator variables can be both memory- and processor-intensive. In particular, inversion of large matrices in :eq:`beta` and :eq:`gamma` can be problematic.

An alternative is to absorb or partial out fixed effects with a de-meaning procedure. If there is only one demand-side fixed effect, that is, if :math:`E_D = 1`, the de-meaning procedure is simple and efficient: :math:`X_1`, :math:`Z_D`, :math:`\delta(\hat{\theta})`, and :math:`\frac{\partial\xi}{\partial\theta}` are de-meaned within each level of the fixed effect. If there is only one supply-side effect, that is, if :math:`E_S = 1`, the same is done with :math:`X_3`, :math:`Z_S`, :math:`\tilde{c}(\hat{\theta})`, and :math:`\frac{\partial\omega}{\partial\theta}`.
An alternative is to absorb or partial out fixed effects with a de-meaning procedure. If there is only one demand-side fixed effect, that is, if :math:`E_D = 1`, the de-meaning procedure is simple and efficient: :math:`X_1`, :math:`Z_D`, :math:`\delta(\hat{\theta})`, and :math:`\partial\xi / \partial\theta` are de-meaned within each level of the fixed effect. If there is only one supply-side effect, that is, if :math:`E_S = 1`, the same is done with :math:`X_3`, :math:`Z_S`, :math:`\tilde{c}(\hat{\theta})`, and :math:`\partial\omega / \partial\theta`.

Estimates computed with the de-meaned data are guaranteed by the Frish-Waugh-Lovell (FWL) theorem (:ref:`Frisch and Waugh, 1933 <fw33>`; :ref:`Lovell, 1963 <l63>`) to be the same as estimates computed when fixed effects are included as indicator variables.

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2 changes: 1 addition & 1 deletion docs/references.rst
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Expand Up @@ -19,7 +19,7 @@ Berry, S., Levinsohn, J., & Pakes, A. (1999). `Voluntary export restraints on au

.. _fw33:

Frisch, R., & Waugh, F. V. (1933). `Partial time regressions as compared with individual trends <http://www.jstor.org/stable/1907330>`_. *Econometrica, 1* (4), 387-401.
Frisch, R., & Waugh, F. V. (1933). `Partial time regressions as compared with individual trends <https://www.econometricsociety.org/publications/econometrica/1933/10/01/partial-time-regressions-compared-individual-trends>`_. *Econometrica, 1* (4), 387-401.

.. _hw08:

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