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A Local Projections Approach to Difference‐in‐Differences

Author

Listed:
  • Arindrajit Dube
  • Daniele Girardi
  • Òscar Jordà
  • Alan M. Taylor

Abstract

We propose a local projections (LPs)‐based difference‐in‐differences (DiD) 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, can be extended to include covariates or accommodate nonabsorbing treatment, and is simple and fast to implement. A simulation and two empirical applications demonstrate that the LP‐DiD estimator performs well in common applied settings.

Suggested Citation

  • Arindrajit Dube & Daniele Girardi & Òscar Jordà & Alan M. Taylor, 2025. "A Local Projections Approach to Difference‐in‐Differences," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 40(7), pages 741-758, November.
    • Handle: RePEc:wly:japmet:v:40:y:2025:i:7:p:741-758
    DOI: 10.1002/jae.70000
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    References listed on IDEAS

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