Interaction effect of two time-varying variables in fixed-effects regression

[Stephanie Hong]

Hello,

I am analyzing panel data with two time periods in individual fixed-effects regression. My independent variable and moderator are both time-varying within each individual. The moderator has three levels. This is the code I used.

[xtreg depvar i.iv##i.moderator covariates, fe robust]

What I want to analyze is whether the effect of my independent variable (i.iv) on dependent variable varies across different levels of the moderator. What is confusing to me is the interpretation on the coefficient on the interaction term of i.iv and i.moderator, since the moderator is also time-variant within each individual. When the moderator is also time-varying, not time-invariant, what does the interaction term indicate?

Since the moderator has three levels, there are six different types of transitions (0-->1, 0-->2, 1-->0, 1-->2, 2-->0, 2-->1). Does the interaction term indicate whether the effect of within-individual change in the independent variable on the dependent variable varies across different within-individual changes in each type of transition of the moderator? If so, I'm still not sure what this interpretation means intuitively.

I'd appreciate if any of you can help me out in this problem!

[Phil Bromiley]

YOu will increase your chances of a useful answer by following the FAQ on asking questions.

With the code, you are treating the variables as indicators so what you have is essentially values for each of the different conditions defined by iv and moderator. These are how much the predicted value differs from the 0,0 value (iv=0 and moderator=0).