Are two-way fixed-effect difference-in-differences estimates blowing smoke? A cautionary tale from state-level bank branching deregulation
41 Pages Posted: 6 Jul 2021 Last revised: 6 Dec 2021
Date Written: November 15, 2021
Abstract
We illustrate the sensitivity of two-way fixed effects difference-indifferences estimates to innocuous changes in data structure. Using the staggered rollout of state-level bank branching deregulations,
three outcome variables are brought to bear on the interventions: personal income growth (a replication), house prices (new to the literature), and per capita cigarette purchases (a falsification test). Estimates are sensitive to panel length, and the data structure creates the false impression of a causal effect of the interventions on all three outcome variables. We contend that any two-way fixed effects regression using this set of interventions is at risk of generating spurious results.
Keywords: banking, deregulation, economic growth, difference-in-differences, two-way fixed effect estimation
JEL Classification: C13, C18, C23, G21, G28, O47
Suggested Citation: Suggested Citation