I am currently learning (by myself) about the analysis of panel data.
What I have seen so far is that a fixed effects model allows us to control for idiosyncratic differences between entities. Moreover, dependencies that universally affect all entities can be controlled by adding time effects.
Here is my question: Are cross sectional dependencies completely controlled when I add time effects to the model ? Or do I need to account for cross sectional dependencies even after I have fixed time effects ?
(Background to the question: One of my study guides explains that time effects are those phenomena that affect all entities over time, such as federal laws in a study local state policies. But then another study guide states that this as an example of a cross sectional dependence which has to be checked even if time effects have been added to the model! That leaves me wondering about the difference of cross sectional dependencies and time effects)
Many thanks for your help!