Quick question on panel VARs. The equation is:
In estimating these models the fixed effect $a_i$ is often removed by differencing or forward demeaning, and then the coefficients are estimated and some restriction imposed so that the error terms are not correlated.
Now the question, is it not a problem in the interpretation of the impulse responses that the fixed effects are not accounted in any way? The shocks have different interpretation if some fixed effect is included correct?
For regular (non-panel) VAR as far as I understand the constant is included when calculating the impulse response in comparison.