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Inference with Difference-in-Differences Revisited

Brewer, M and Crossley, TF and Joyce, R (2018) 'Inference with Difference-in-Differences Revisited.' Journal of Econometric Methods, 7 (1). ISSN 2156-6674

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A growing literature on inference in difference-in-differences (DiD) designs has been pessimistic about obtaining hypothesis tests of the correct size, particularly with few groups. We provide Monte Carlo evidence for four points: (i) it is possible to obtain tests of the correct size even with few groups, and in many settings very straightforward methods will achieve this; (ii) the main problem in DiD designs with grouped errors is instead low power to detect real effects; (iii) feasible GLS estimation combined with robust inference can increase power considerably whilst maintaining correct test size - again, even with few groups, and (iv) using OLS with robust inference can lead to a perverse relationship between power and panel length.

Item Type: Article
Uncontrolled Keywords: difference in differences, hypothesis tes, power, cluster robust, feasible GLS
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences > Economics, Department of
Faculty of Social Sciences > Institute for Social and Economic Research
Depositing User: Elements
Date Deposited: 19 Sep 2017 14:10
Last Modified: 06 Sep 2018 13:15

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