STAT Question

EXERCISE 9

Purpose: To learn how to use the Difference-in-Difference model to model the effects of policy changes. You are to use the R program “Exercise 9.R” that I have posted on Canvas to complete this exercise. Notice that the R program uses the file “KIELMC.DTA” which is a STATA data file. You will need to use the import facility in RStudio to download the file to your computer.

The first thing I want you to do is to go to the Wooldridge textbook example that I have posted on Canvas entitled “Effect of a Garbage Incinerator’s Location on Housing Prices” and read it. It can be found in the “Diff-in-Diff_Wooldridge.pdf” file. After you have read it, write up a short paragraph on the nature of the problem that is being examined. After that, define below the variables that are used in Models 1 – 4 in the Exercise 9.R program.

Now go to the Exercise 9.R program, run it, and answer the following questions:

(a) Explain to me what we are trying to do when we estimate Model1. What does the estimated equation tell us? Explain your answer thoroughly. Report the output produced from “summary(model1).”

(b) What is the difference between Model1 and Model2 of this part? What

conclusions can you draw from this estimated equation? Explain your answer

thoroughly. Report the output produced by “summary(model2).”

(c) What is the difference between Model2 and Model3 of this part? What

conclusions can you draw from this estimated equation? Explain your answer

thoroughly. Report the output produced by “summary(model3).”

(d) What is the difference between Model3 and Model4 of this part? What

conclusions can you draw from this estimated equation? Explain your answer

thoroughly. Report the output produced by “summary(model4).”