Can I regress company data as dependent and macroeconomic data as independent?

[Lucas Schwarz]

Can I regress company data (as firm performance - the dependent variable) on macroeconomic data (as macroeconomic uncertainty - the independent variable)? Is it econometrically right? Because all firms are subject to the same macroeconomic uncertainty at a given point in time (cross-sectionally invariant), which effect should I adopt for panel data? I'm not sure if fixed effects fits, as year fixed effects could capture most of the explanatory power of macroeconomic uncertainty (for example).

Thanks.

[Phil Bromiley]

Welcome to Statalist. You didn't get a quick response. You'll increase your chances of a useful answer by following the FAQ on asking questions - provide Stata code in code delimiters, readable Stata output, and sample data using dataex.

It is reasonable to look at the effect of higher-level variables (like macroecon) on lower level variables (like firm performance). However, if you include year fixed effects, you can't include annual macroeconomic factors. With firm level data and multiple observations per firm, normally, we would go with firm as the panel. You will probably want some other firm-level controls and maybe interactions between firm characteristics and the macroeconomic variables.

[Lucas Schwarz]

Thank you, Phil.