Causal inference using factor models

Jushan Bai and Peng Wang

MPRA Paper from University Library of Munich, Germany

Abstract: We propose a framework for causal inference using factor models. We base our identification strategy on the assumption that policy interventions cause structural breaks in the factor loadings for the treated units. The method allows heterogeneous trends and is easy to implement. We compare our method with the synthetic control methods of Abadie, et al (2010, 2015), and obtain similar results. Additionally, we provide confidence intervals for the causal effects. Our approach expands the toolset for causal inference.

Keywords: synthetic control; difference-in-differences; structural breaks; latent factors. (search for similar items in EconPapers)
JEL-codes: C1 C23 C33 C51 (search for similar items in EconPapers)
Date: 2024-03-31
New Economics Papers: this item is included in nep-ecm and nep-ets
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:120585

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