A Local Projections Approach to Difference-in-Differences Event Studies / Arindrajit Dube, Daniele Girardi, Òscar Jordà, Alan M. Taylor.

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Dube, Arindrajit

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TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w31184.Publication details: Cambridge, Mass. National Bureau of Economic Research 2023.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: We propose a local projection (LP) based difference-in-differences approach that subsumes many of the recent solutions proposed in the literature to address possible biases arising from negative weighting. We combine LPs with a flexible 'clean control' condition to define appropriate sets of treated and control units. Our proposed LP-DiD estimator can be implemented with various weighting and normalization schemes for different target estimands, accommodates controls for pre-treatment values of the outcome and of other time-varying covariates, and is simple and fast to implement. Simulations and two empirical applications demonstrate that the LP-DiD estimator performs well in common applied settings.

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April 2023.

We propose a local projection (LP) based difference-in-differences approach that subsumes many of the recent solutions proposed in the literature to address possible biases arising from negative weighting. We combine LPs with a flexible 'clean control' condition to define appropriate sets of treated and control units. Our proposed LP-DiD estimator can be implemented with various weighting and normalization schemes for different target estimands, accommodates controls for pre-treatment values of the outcome and of other time-varying covariates, and is simple and fast to implement. Simulations and two empirical applications demonstrate that the LP-DiD estimator performs well in common applied settings.