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Efficient Estimation and Inference for Difference-In-Difference Regressions with Persistent Errors

In: Essays in Honor of Peter C. B. Phillips

Author

Listed:
  • Ryan Greenaway-McGrevy
  • Chirok Han
  • Donggyu Sul

Abstract

This paper is concerned with estimation and inference for difference-in-difference regressions with errors that exhibit high serial dependence, including near unit roots, unit roots, and linear trends. We propose a couple of solutions based on a parametric formulation of the error covariance. First stage estimates of autoregressive structures are obtained by using the Han, Phillips, and Sul (2011, 2013) X-differencing transformation. The X-differencing method is simple to implement and is unbiased in largeNsettings. Compared to similar parametric methods, the approach is computationally simple and requires fewer restrictions on the permissible parameter space of the error process. Simulations suggest that our methods perform well in the finite sample across a wide range of panel dimensions and dependence structures.

Suggested Citation

  • Ryan Greenaway-McGrevy & Chirok Han & Donggyu Sul, 2014. "Efficient Estimation and Inference for Difference-In-Difference Regressions with Persistent Errors," Advances in Econometrics, in: Essays in Honor of Peter C. B. Phillips, volume 33, pages 281-302, Emerald Group Publishing Limited.
    • Handle: RePEc:eme:aecozz:s0731-905320140000033009
    DOI: 10.1108/S0731-905320140000033009
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    More about this item

    Keywords

    Treatment effects; difference-in-difference estimation; serial dependence; x-differencing; Cochrane-Orcutt transformation; C33;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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