Hello everyone,

I am investigating the effects of an exogenous economic shock on the unsecured credit market. I have a panel data set consisting of 6 states and monthly data over a period of five years resulting in 360 observations.

So far I have used the Difference in Difference approach (see regression below). However, in the Forum I have seen similar panel data regressions utilizing Fixed Effects and thus the xtreg command. I do not to a full extent understand how these two approaches differ. Considering that I have accounted for state-specific and year specific effects in the regression, is there any differences in the two methodologies that are not captured and should be tested? Further on, is the reg command correct for panel data regressions?

I have been using the following regression in my analysis;

Marketsize: Size of the unsecured credit market in USD.

Treatment: States affected by the shock

Control Group: States not affected by the shock

Time-variable: Post-shock

Interaction term: Treatment x time variable

Dstate(number): State dummies. Captures the state-specific features.

Dyear(number): Year dummies. Captures the year-specific features.

If there is a difference in the approaches: What are the pros and cons of using a fixed effect model instead of a Difference in Difference model?

Any help would be greatly appreciated.

I am investigating the effects of an exogenous economic shock on the unsecured credit market. I have a panel data set consisting of 6 states and monthly data over a period of five years resulting in 360 observations.

So far I have used the Difference in Difference approach (see regression below). However, in the Forum I have seen similar panel data regressions utilizing Fixed Effects and thus the xtreg command. I do not to a full extent understand how these two approaches differ. Considering that I have accounted for state-specific and year specific effects in the regression, is there any differences in the two methodologies that are not captured and should be tested? Further on, is the reg command correct for panel data regressions?

I have been using the following regression in my analysis;

Code:

reg marketsize treatment time-variable interaction_term Dstate2 Dstate3 Dstate4 Dstate5 Dstate6 Dyear2 Dyear3 Dyear4 Dyear5, robust

Treatment: States affected by the shock

Control Group: States not affected by the shock

Time-variable: Post-shock

Interaction term: Treatment x time variable

Dstate(number): State dummies. Captures the state-specific features.

Dyear(number): Year dummies. Captures the year-specific features.

If there is a difference in the approaches: What are the pros and cons of using a fixed effect model instead of a Difference in Difference model?

Any help would be greatly appreciated.

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