Working Paper: NBER ID: w24565
Authors: Simon Freyaldenhoven; Christian Hansen; Jesse M. Shapiro
Abstract: We consider a linear panel event-study design in which unobserved confounds may be related both to the outcome and to the policy variable of interest. We provide sufficient conditions to identify the causal effect of the policy by exploiting covariates related to the policy only through the confounds. Our model implies a set of moment equations that are linear in parameters. The effect of the policy can be estimated by 2SLS, and causal inference is valid even when endogeneity leads to pre-event trends ("pre-trends") in the outcome. Alternative approaches perform poorly in our simulations.
Keywords: panel event-study; causal inference; minimum wage; youth employment
JEL Codes: C23; C26
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| unobserved confounds (it) (D80) | outcome (yit) (C29) |
| covariate (xit) (C29) | unobserved confounds (it) (D80) |
| covariate (xit) (C29) | outcome (yit) (C29) |
| pretrend in xit (Y60) | pretrend in it (Y60) |
| policy variable (zit) (E64) | outcome (yit) (C29) |