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Research Paper IZA Discussion Papers 7742

Inference with difference-in-differences revisited


Publication date

Nov 2013


A growing literature on inference in difference-in-differences (DiD) designs with grouped errors has been pessimistic about obtaining hypothesis tests of the correct size, particularly with few groups. We provide Monte Carlo evidence for three points: (i) it is possible to obtain tests of the correct size even with few groups, and in many settings very straightforward methods will achieve this; (ii) the main problem in DiD designs with grouped errors is instead low power to detect real effects; and (iii) feasible GLS estimation combined with robust inference can increase power considerably whilst maintaining correct test size – again, even with few groups.


Statistical Mathematics and Econometrics


Related publications

  1. Inference with difference-in-differences revisited

    Mike Brewer, Thomas F. Crossley, and Robert Joyce

    1. Statistical Mathematics
    2. Econometrics


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