Hi dear Statalist, I’m exploring how the bank specific characteristics and macro variables (liquidity of loan secondary market) affect the banks’ loan origination decision.
In my story, liquidity of loan secondary market plays important role, because the banks’ behaviour will show difference upon different market liquidity trend.
I meet some problem when I’m working with my panel data so I’m asking for your kind help.

Here is some information about my data and model
1) Short balanced panel data:
N=370 banks
T=22 quarters
2) choose between Pooled regression/FE/RE: result is FE
3) data suffer from heteroskedasticity, autocorrelation/serial correlation, cross-sectional dependence problems

My questions are:
Q1.I test the time-effect by running
-xtreg y x i.quarter,fe-
-test quarter1=quarter2=…=quarter22=0
I find that there is time-effect. It seems that I should do the two-way-fixed effect.
But since my “liquidity of loan secondary market” is a macro variable which takes on the same values for all banks in any given time period, it will be colinear with the year dummy. It should be dropped. I’ve tried the two-way-fixed effect model, and the coefficient of liquidity became really strange.
So is it OK if I do not include time-fixed effect? Or are there any other ways to fix time-effect problem without dropping my liquidity variable?

Q2. Is the unit root test necessary to do here? My T is 22 quarters, only about 5 years. And should we judge whether to do the unit root test based on absolute time length, or just number of T?

Q3.It -xtscc- the right way to solve my data problem?

Thanks so much for your help!
Best,
Angelina