tests/testthat/test_bacon_FE.R

In evanjflack/bacondecomp: Goodman-Bacon Decomposition

# These tests calculates the bacon decomposition and then takes the weighted sum
# of the decomposition which should return the traditional two-way FE estimates

# Uncontrolled -----------------------------------------------------------------
# Bacon decomp
df_bacon <- bacon(l_homicide ~ post,
                  data = bacondecomp::castle,
                  id_var = "state",
                  time_var = "year")

two_way_bacon_coef <- sum(df_bacon$estimate * df_bacon$weight)

# Two way FE
two_way_fe <- fixest::feols(l_homicide ~ post | state + year,
                 data = bacondecomp::castle)
two_way_fe_coef <- two_way_fe$coefficients[1]
names(two_way_fe_coef) <- NULL

test_that("Two-way FE recovered", {
  expect_equal(two_way_bacon_coef, two_way_fe_coef)
})

# Controlled -------------------------------------------------------------------
df <- bacondecomp::castle[, c("state", "year", "l_homicide", "post", "l_income", 
                        "l_pop")]
test_formula <- l_homicide ~ post + l_income + l_pop
ret_bacon <- bacon(test_formula, 
                   data = df,
                   id_var = "state",
                   time_var = "year")

test_that("Controlled bacon returns working object", {
  expect_equal(class(ret_bacon), "list")
  expect_true(length(ret_bacon) == 3)
})

# Bacon estimate
beta_hat_w <- ret_bacon$beta_hat_w
beta_hat_b <- weighted.mean(ret_bacon$two_by_twos$estimate, 
                            ret_bacon$two_by_twos$weight)
Omega <- ret_bacon$Omega
two_way_bacon_coef_cont <- Omega*beta_hat_w + (1 - Omega)*beta_hat_b

# Two way FE estimate
test_formula1 <- formula(terms(test_formula, data = df))
two_way_test_formula <- update(test_formula1, 
                               . ~ . + factor(state) + factor(year)) 
two_way_fe_cont <- lm(two_way_test_formula, data = df)
two_way_fe_coef_cont <- two_way_fe_cont$coefficients["post"]
names(two_way_fe_coef_cont) <- NULL

test_that("Two Way FE multi recovered", {
  expect_equal(two_way_bacon_coef_cont, two_way_fe_coef_cont)
})