We investigate estimation and inference in difference in difference econometric models used in the analysis of treatment effects. When the innovations in such models display serial correlation, commonly used ordinary least squares (OLS) procedures are inefficient and may lead to tests with incorrect size. Implementation of feasible generalized least squares (FGLS) procedures is often hindered by too few observations in the cross section to allow for unrestricted estimation of the weight matrix without leading to tests with similar size distortions as conventional OLS based procedures.
Difference in Difference meets Generalized Least Squares: Higher Order Properties of Hypotheses TestsJerry Hausman and Guido Kuersteiner ,
2( 144 )
Journal of Econometrics
Difference in Difference meets Generalized Least Squares: Higher Order Properties of Hypotheses Tests