What you will learn
- Natural experiments
- Before-after limitations
- Difference-in-differences assumptions
- Instrumental-variable assumptions
Natural experiments
A natural experiment uses a source of variation argued to be sufficiently unrelated to other outcome determinants for a defined question. The argument must be explained; calling an event natural does not make assignment random.
Before-after limitations
Before-after comparisons can confound the event with trends, seasonality or simultaneous changes. A change after an announcement is not necessarily caused entirely by the announcement.
Difference-in-differences assumptions
Difference-in-differences compares changes across treated and comparison groups under assumptions such as an appropriate counterfactual trend. Group selection, timing and heterogeneous effects matter. A formula alone does not validate the design.
Instrumental-variable assumptions
An instrumental-variable design requires a justified relationship with treatment and restrictions on other paths to the outcome. A variable that predicts treatment strongly is not automatically a valid instrument.
Worked example
Gold rises after an announcement, but another major release occurs in the same window. A before-after difference cannot uniquely assign the rise to the first announcement.
Try it yourself
Describe what additional design evidence would be needed before making a causal attribution, and identify one assumption that may remain untestable.
Show the worked solution
Seek a credible comparison or source of variation, account for simultaneous information and specify the counterfactual argument. Assumptions about how the outcome would have behaved without the event cannot generally be observed directly for the same unit and time.
Apply this to your course project
Draw a causal diagram and explain the identification limits of a proposed gold-market study.
Keep the calculation inputs, assumptions and decisions with your work. Practical exercises are self-reviewed; the scored knowledge checks assess the questions shown, not an independent certification of practical competence.