A Local Projections Approach to Difference-in-Differences Event Studies

The Institute of Economics will hold a seminar meeting as part of its Seminar Series on Tuesday, February 7, 2023: Daniele Girardi from the University of Massachusetts, Amherst will present the paper "A Local Projections Approach to Difference-in-Differences Event Studies".

Abstract

Recent applied microeconometrics research proposes various difference-in-differences (DiD) estimators for the problem of dynamic heterogeneous treatment effects. We show that the problem can be resolved by the local projections (LP) estimators of the sort used in applied macroeconometrics, combined with a flexible ‘clean control’ condition to appropriately define treated and control units. Our proposed LP-DiD estimator provides an overarching toolkit with several advantages. The method is clear, simple, easy to compute, and transparent and flexible in its handling of treated and control units. Moreover, it is quite general, including its ability to control for pre-treatment values of the outcome and of other time-varying covariates. The LP-DiD estimator does not suffer from the negative weighting problem, and indeed can be implemented with any weighting scheme the investigator desires. Simulations demonstrate the good performance of the LP-DiD estimator in common settings. Two empirical applications illustrate how LP-DiD addresses the bias of conventional fixed effects estimators, leading to potentially different results.

The paper is available here. The seminar will be held in blended mode. In person participation is possible in Aula 3 and available seats are allocated on a first come first served basis. For online participation please use the following link.