An Honest Approach to Parallel Trends (Job Market Paper)

Citation:

Ashesh Rambachan and Jonathan Roth. Working Paper. “An Honest Approach to Parallel Trends (Job Market Paper)”.

Abstract:

Standard approaches for causal inference in difference-in-differences and event-study designs are valid only under the assumption of parallel trends. Researchers are typically unsure whether the parallel trends assumption holds, and therefore gauge its plausibility by testing for pre-treatment differences in trends ("pre-trends") between the treated and untreated groups. This paper proposes robust inference methods that do not require that the parallel trends assumption holds exactly. Instead, we impose restrictions on the set of possible violations of parallel trends that formalize the logic motivating pre-trends testing -- namely, that the pre-trends are informative about what would have happened under the counterfactual. Under a wide class of restrictions on the possible differences in trends, the parameter of interest is set-identified and inference on the treatment effect of interest is equivalent to testing a set of moment inequalities with linear nuisance parameters. We derive computationally tractable confidence sets that are uniformly valid ("honest") so long as the difference in trends satisfies the imposed restrictions. Our proposed confidence sets are consistent, and have optimal local asymptotic power for many parameter configurations. We also introduce fixed length confidence intervals, which can offer finite-sample improvements for a subset of the cases we consider. We recommend that researchers conduct sensitivity analyses to show what conclusions can be drawn under various restrictions on the set of possible differences in trends. We conduct a simulation study and illustrate our recommended approach with applications to two recently published papers.

We provide an R package for implementation of our methods: HonestDiD

Last updated on 11/29/2019