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Pre-event Trends in the Panel Event-study Design

Author

Listed:
  • Simon Freyaldenhoven
  • Christian Hansen
  • Jesse Shapiro

Abstract

We consider a linear panel event-study design in which unobserved confounds may be related both to the outcome and to the policy variable of interest. We provide sufficient conditions to identify the causal effect of the policy by exploiting covariates related to the policy only through the confounds. Our model implies a set of moment equations that are linear in parameters. The effect of the policy can be estimated by 2SLS, and causal inference is valid even when endogeneity leads to pre-event trends (?pre-trends?) in the outcome. Alternative approaches perform poorly in our simulations

Suggested Citation

  • Simon Freyaldenhoven & Christian Hansen & Jesse Shapiro, 2019. "Pre-event Trends in the Panel Event-study Design," Working Papers 19-27, Federal Reserve Bank of Philadelphia.
    • Handle: RePEc:fip:fedpwp:19-27
    DOI: https://doi.org/10.21799/frbp.wp.2019.27
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    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation

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