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I have problems with the interpretation of a Two-way-fixed-effects-model. I understood both the interpretation of the single individual effect and the single time effect in a fixed-effects-model. But how can I interpret the model if both effects are included in the model?

$$ y_{ i,t }=x'_{ i,t }\beta+\alpha_{ i }+\theta_{ t }+\epsilon_{ i,t } $$

For example, I have a panel of firms, $\theta_{ t }$ might represent business cycle effects, whereas $\alpha_{ i }$ would contain firm specific effects that can be argued to be constant over time, such as the "culture" of the firm.

How should I interpret this Two-way-model? Are there business cycle effects for every firm culture? Or do both effects exist without interacting?

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