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Dif-in-Dif Estimators of Multiplicative Treatment Effects

Ciani, Emanuele and Fisher, Paul (2019) 'Dif-in-Dif Estimators of Multiplicative Treatment Effects.' Journal of Econometric Methods, 8 (1). ISSN 2156-6674

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We consider a difference-in-differences setting with a continuous outcome. The standard practice is to take its logarithm and then interpret the results as an approximation of the multiplicative treatment effect on the original outcome. We argue that a researcher should rather focus on the non-transformed outcome when discussing causal inference. The first step should be to decide whether the time trend is more likely to hold in multiplicative or level form. If the former, it is preferable to estimate an exponential model by Poisson Pseudo Maximum Likelihood, which does not require statistical independence of the error term. Running OLS on the log-linearised model might instead lead to confounding distributional and mean changes. We illustrate the argument with a simulation exercise.

Item Type: Article
Uncontrolled Keywords: difference-in-differences; log-linearisation; Poisson Pseudo Maximum Likelihood
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences
Faculty of Social Sciences > Institute for Social and Economic Research
SWORD Depositor: Elements
Depositing User: Elements
Date Deposited: 15 May 2018 14:51
Last Modified: 06 Jan 2022 13:50

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