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**Unformatted text preview: **Economics 20 - Prof. Anderson 1 Panel Data Methods y it = β + β 1 x it1 + . . . β k x itk + u it Economics 20 - Prof. Anderson 2 A True Panel vs. A Pooled Cross Section Often loosely use the term panel data to refer to any data set that has both a cross- sectional dimension and a time-series dimension More precisely it’s only data following the same cross-section units over time Otherwise it’s a pooled cross-section Economics 20 - Prof. Anderson 3 Pooled Cross Sections We may want to pool cross sections just to get bigger sample sizes We may want to pool cross sections to investigate the effect of time We may want to pool cross sections to investigate whether relationships have changed over time Economics 20 - Prof. Anderson 4 Difference-in-Differences Say random assignment to treatment and control groups, like in a medical experiment One can then simply compare the change in outcomes across the treatment and control groups to estimate the treatment effect For time 1,2, groups A, B (y 2,B – y 2,A ) - (y 1,B – y 1,A ), or equivalently (y 2,B – y 1,B ) - (y 2,A – y 1,A ), is the difference-in-differences Economics 20 - Prof. Anderson 5 Difference-in-Differences (cont) A regression framework using time and treatment dummy variables can calculate this difference-in-difference as well Consider the model: y it = β + β 1 treatment it + β 2 after it + β 3 treatment it *after it + u it The estimated β 3 will be the difference-in- differences in the group means Economics 20 - Prof. Anderson 6 Difference-in-Differences (cont) When don’t truly have random assignment,...

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