First-differences o We can subtract one period from the other to obtain Ayi=+B△xn+…+BAxk+ △ This model has no correlation between the x's and the error term. so no bias Need to be careful about organization of the data to be sure compute correct change Economics 20- Prof anderson 9Economics 20 - Prof. Anderson 9 First-differences We can subtract one period from the other, to obtain Dyi = d0 + b1Dxi1 +…+ bkDxik + Dui This model has no correlation between the x’s and the error term, so no bias Need to be careful about organization of the data to be sure compute correct change