Hi all,

I have a question regarding the performance of a placebo test when using a regression discontinuity design.

With reference to Angrist and Pischke (2008) one can center the running variable around the cutoff to ensure that the treatment effect is still the coefficient to D_i. The true cutoff is at zero such that for the normal regression it is not necessary. However, when doing a placebo test it is. When performing a placebo test for a pseudo cutoff of +0.03 I conduct it as follows (Let's call the running variable x):

Code:
gen D = x > 0.03
gen xtilde = x-0.03
gen xtilde_2 = xtilde^2
gen xtilde_3 = xtilde^3
gen xtildeD = xtilde * D
gen xtilde_2D = xtilde_2 * D
gen xtilde_3D = xtilde_3 * D
reg outcome D xtilde xtilde_2 xtilde_3 xtildeD xtilde_2D xtilde_3D, robust
My question is what to do if I want to test for a pseudo cutoff of -0.03? Do I then specify it as follows:

Code:
gen D = x > -0.03
gen xtilde = x-(-0.03)
gen xtilde_2 = xtilde^2
gen xtilde_3 = xtilde^3
gen xtildeD = xtilde * D
gen xtilde_2D = xtilde_2 * D
gen xtilde_3D = xtilde_3 * D
reg outcome D xtilde xtilde_2 xtilde_3 xtildeD xtilde_2D xtilde_3D, robust
Thank you!
Best, Kathrin