Morgan Bale

Morgan Bale

Quantitative Marketing Ph.D. student at Drexel University

Bayesian Synthetic Control Methods Example

less than 1 minute read

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In this post, I test the Bayesian Synthetic Control Model presented in Kim et al (2020) using both simulated data and the “smoking” data set from Abadie et al (2010). The BSC.pdf slides provide background on synthetic controls, compare standard synthetic control to BSCM and explain the example provided in the markdown file “bscm_class_example.md”. References are provided at the end of the pdf slides.

Bayesian Synthetic Control Methods Slides

Download slides here.

Bayesian Synthetic Control Methods Example in R

This link takes you to the Github Repo with all the files necessary to run the example.

This link takes you to the markdown file if you would like to read through the output and without running.

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Instrumental Variables FAQ

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What makes a valid instrument?

A valid instrument must be exogeneous and a strong predictor of the explanatory variable of interest. For an instrument to be considered exogenous, it must be uncorrelated with the error term in the regression model. This means it does not have a direct relationship on the dependent variable, but only affects the dependent variable through our endogenous regressor. Our instrument is considered strong when it is a strong predictor of our endogenous regressor (has a high correlation).