Econometrics · intermediate
What moves on the Difference-in-Differences diagram
Shocks common to both groups cancel in the second difference. This is what DiD buys you over a simple before-after comparison, and why the control group matters.
A boom arrives that has nothing to do with the policy.
BOTH lines steepen together: treated and control alike.
A naive before-after comparison of the treated group would credit the policy with the whole boom.
Differencing against the control group nets the boom out. That second difference is the whole point of the design.
Examiners ask this as: common shock, boom in both groups, economy wide trend, parallel lift, confounded before after.
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