Assessing Causality in Time-Series Data with External Shocks
Instruction: Explain how you would evaluate the causal impact of external shocks (e.g., new regulations, market entry of a competitor) on a company's sales using time-series data.
Context: This question challenges the candidate to apply causal inference techniques to time-series data, which is common in economic and financial contexts. The response should detail methods to differentiate the impact of external shocks from underlying trends and seasonal effects.
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Specify the event, exposure, outcome, time horizon and target effect. Define sales consistently, including returns, prices, currency treatment and reporting changes. The label external shock does not prove exogenous timing: a competitor may enter because it anticipates demand.
Inspect several pre-event periods for trends, seasonality and measurement changes...