NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Pre-event Trends in the Panel Event-study Design

Simon Freyaldenhoven, Christian Hansen, Jesse M. Shapiro

NBER Working Paper No. 24565
Issued in April 2018
NBER Program(s):Labor Studies, Public Economics, Political Economy, Technical Working Papers

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, such as estimation following a test for pre-trends, perform poorly.

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Document Object Identifier (DOI): 10.3386/w24565

 
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