The treated and control groups were trending parallel

Problem 1. Define and explain the following terms. Use no more than three sentences. (2 points each)
1. Exclusion restriction (in context of IV)
2. 2SLS
3. Serial Correlation
4. Bias
5. Statistical significance

1

3. The IV estimator for β1 is obtained by regressing Y on ˆX.

For the next several problems, consider a difference-in-differences model of the form

2

Application and Interpretation

Problem 4. Interpret the value of -0.129498. (2 points)

Problem 5. Can we reject the null hypothesis that there was no difference in labor supply between women with and without children prior to the EITC expansion? Explain. (2 points)

Problem 7. Does this figure tell us anything about the plausibility of the parallel trends assumption? (3 points)

For the next several problems consider the following scenario. Suppose you wanted to test whether attending office hours improved students’ test scores. Since office hours attendance is likely endogenous (i.e., correlated with other things that affect test scores), you instrument for office hours attendance with the distance between the student’s dorm room and the professors office, with the idea that living closer to the professors office increases office hours attendance.

4

Derivations Consider the following difference-in-differences regression
Y = β0 + β1 · Post + β2 · Treated + β3 · Post · Treated + ϵ (3) Problem 12. Interpret each regression coefficient. (4 points)
Problem 13. Suppose β0 and β1 are both positive and β2 and β3 are both negative. Sketch a plot of Y against time that would lead to these estimates. (4 points)