A Local Projections Approach to Difference-in-Differences

Arindrajit Dube, Daniele Girardi, Oscar Jorda and Alan Taylor

No 31184, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We propose a local projection (LP) based difference-in-differences approach that subsumes many of the recent solutions proposed in the literature to address possible biases arising from negative weighting. We combine LPs with a flexible ‘clean control’ condition to define appropriate sets of treated and control units. Our proposed LP-DiD estimator can be implemented with various weighting and normalization schemes for different target estimands, can be extended to include covariates or accommodate non-absorbing treatment, and is simple and fast to implement. A simulation and two empirical applications demonstrate that the LP-DiD estimator performs well in common applied settings.

JEL-codes: C1 C23 C5 (search for similar items in EconPapers)
Date: 2023-04
New Economics Papers: this item is included in nep-des and nep-ecm
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