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Inference with Difference-in-Differences and Other Panel Data

Author

Listed:
  • Stephen G. Donald

    (University of Texas at Austin)

  • Kevin Lang

    (Boston University and NBER)

Abstract

We examine inference in panel data when the number of groups is small, as is typically the case for difference-in-differences estimation and when some variables are fixed within groups. In this case, standard asymptotics based on the number of groups going to infinity provide a poor approximation to the finite sample distribution. We show that in some cases the t-statistic is distributed as t and propose simple two-step estimators for these cases. We apply our analysis to two well-known papers. We confirm our theoretical analysis with Monte Carlo simulations. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Suggested Citation

  • Stephen G. Donald & Kevin Lang, 2007. "Inference with Difference-in-Differences and Other Panel Data," The Review of Economics and Statistics, MIT Press, vol. 89(2), pages 221-233, May.
  • Handle: RePEc:tpr:restat:v:89:y:2007:i:2:p:221-233
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