Financial Econometrics Chapter 7.Difference-in-difference Model 1 Jin Ling School of Finance,Zhongnan University of Economics and Law
Financial Econometrics Chapter 7. Difference-in-difference Model 1 Jin Ling School of Finance, Zhongnan University of Economics and Law 1
Outline The Difference-in-difference (DID)Model The Condition for DID Model The Steps to estimate DID Model 2
• The Difference-in-difference (DID) Model • The Condition for DID Model • The Steps to estimate DID Model 2 Outline
The DID Model The methodology for causal inference: Experiment Design:Empirical study is based on observed data. ·Natural experiment:个体接受的干预来自其面临环境的变化，使得干预就像随机可控实验中 那样具有随机性。 Natural experiment does not equal randomized experiment:Unconfoundedness. The assignment mechanism in natural experiment:Potential outcomes will not response to treatment before the treatment period;Observation is not selected. Natural experiment(Randomized)and quasi-natural experiment (Not strictly randomized) 3
• The methodology for causal inference: • Experiment Design: Empirical study is based on observed data. • Natural experiment: 个体接受的干预来自其面临环境的变化，使得干预就像随机可控实验中 那样具有随机性。 • Natural experiment does not equal randomized experiment: Unconfoundedness. • The assignment mechanism in natural experiment: Potential outcomes will not response to treatment before the treatment period; Observation is not selected. • Natural experiment (Randomized) and quasi-natural experiment (Not strictly randomized). 3 The DID Model
The DID Model How to estimate causal effect under natural experiment: Treatment and control groups. The difference in potential outcomes for treatment and control groups. Which potential outcomes? Treatment and control groups before and after treatment period
• How to estimate causal effect under natural experiment: • Treatment and control groups. • The difference in potential outcomes for treatment and control groups. • Which potential outcomes? • Treatment and control groups before and after treatment period. 4 The DID Model
The DID Model ·The example: Stimulus program in 2008-2009 ·Firm investment. Firm investment for treatment group in 2007(/m). Firm investment for control group in 2007 (Invoo). Firm investment for treatment group in 2010(/m). Firm investment for control group in 2010(Invo). 5
• The example: • Stimulus program in 2008-2009. • Firm investment. • Firm investment for treatment group in 2007 (Inv10). • Firm investment for control group in 2007 (Inv00). • Firm investment for treatment group in 2010 (Inv11). • Firm investment for control group in 2010 (Inv01). 5 The DID Model