A Local Projections Approach to Difference-in-Differences
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.
More from NBER
In addition to working papers, the NBER disseminates affiliates’ latest findings through a range of free periodicals — the NBER Reporter, the NBER Digest, the Bulletin on Retirement and Disability, the Bulletin on Health, and the Bulletin on Entrepreneurship — as well as online conference reports, video lectures, and interviews.
