A Local Projections Approach to Difference-in-Differences Event Studies
We propose a local projection (LP) based difference-in-differences 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, accommodates controls for pre-treatment values of the outcome and of other time-varying covariates, and is simple and fast to implement. Simulations and two empirical applications demonstrate that the LP-DiD estimator performs well in common applied settings.