Pre-Event Trends in the Panel Event-Study Design

54 Pages Posted: 6 Jun 2019 Last revised: 29 Apr 2020

See all articles by Simon Freyaldenhoven

Simon Freyaldenhoven

Federal Reserve Banks - Federal Reserve Bank of Philadelphia

Christian Hansen

University of Chicago - Booth School of Business - Econometrics and Statistics

Jesse M. Shapiro

Brown University - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: 2019-06-04

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

Keywords: pre-trends, event study, differences-in-differences

JEL Classification: C23, C26

Suggested Citation

Freyaldenhoven, Simon and Hansen, Christian and Shapiro, Jesse M., Pre-Event Trends in the Panel Event-Study Design (2019-06-04). FRB of Philadelphia Working Paper No. 19-27, Available at SSRN: https://ssrn.com/abstract=3399070 or http://dx.doi.org/https://doi.org/10.21799/frbp.wp.2019.27

Simon Freyaldenhoven (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

Christian Hansen

University of Chicago - Booth School of Business - Econometrics and Statistics ( email )

Chicago, IL 60637
United States
773-834-1702 (Phone)

Jesse M. Shapiro

Brown University - Department of Economics ( email )

64 Waterman Street
Providence, RI 02912
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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