Working Paper
Estimating the Missing Intercept
Abstract: Cross-sectional data have proven to be increasingly useful for macroeconomic research. However, their use often leads to the 'missing intercept' problem in which aggregate general equilibrium effects and policy responses are absorbed into fixed effects. We present a statistical approach to jointly estimate aggregate and idiosyncratic effects within a panel framework, leveraging identification strategies coming from both cross-sectional or time-series settings. We then apply our methodology to study government spending multipliers (Nakamura and Steinsson, 2014) and wealth effects from stock returns (Chodorow-Reich et al., 2021).
JEL Classification: C11; C50; E62; H50; R12;
https://doi.org/10.21144/wp25-12
Access Documents
File(s):
File format is application/pdf
https://www.richmondfed.org/-/media/RichmondFedOrg/publications/research/working_papers/2025/wp25-12.pdf
Description: Working Paper
Bibliographic Information
Provider: Federal Reserve Bank of Richmond
Part of Series: Working Paper
Publication Date: 2025-10-03
Number: 25-12