Which of the following assumptions is required to obtain a first-differenced estimator in a two-period panel data analysis?
A. The explanatory variable does not change over time for any cross-sectional unit.
B. The explanatory variable changes by the same amount in each time period.
C. The variance of the error term in the regression model is not constant.
D. The idiosyncratic error at each time period is uncorrelated with the explanatory variables in both time periods.
Answer: D
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