On the Use of Two-Way Fixed Effects Regression Models for Causal Inference with Panel Data

• http://web.mit.edu/insong/www/pdf/FEmatch-twoway.pdf
• Two way fixed effects regression model, Panel analysis

The two-way linear fixed effects regression (2FE) has become a default method for estimating causal effects from panel data. Many applied researchers use the 2FE estimator to adjust for unobserved unit-specific and time-specific confounders at the same time. Unfortunately, we demonstrate that the ability of the 2FE model to simultaneously adjust for these two types of unobserved confounders critically relies upon the assumption of linear additive effects.