Take the basic difference-in-difference model Yi t Di t ui t i t . Instead of assuming that Di t and i t are

Take the basic difference-in-difference model Yi t Æ µDi t Åui űt Å"i t .

Instead of assuming that Di t and "i t are independent, assume we have an instrumental variable Zi t which is independent of "i t but is correlated with Di t . Describe how to estimate µ.

Hint: Review Section 17.28.