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Inference with Difference-in-Differences and Other Panel Data

Stephen G. Donald¹; Kevin Lang²

¹ The University of Texas at Austin · ² Boston University

We examine inference in panel data when the number of groups is small, as is typically the case for difference-in-differences estimation and when some variables are fixed within groups. In this case, standard asymptotics based on the number of groups going to infinity provide a poor approximation to the finite sample distribution. We show that in some cases the t-statistic is distributed as t and propose simple two-step estimators for these cases. We apply our analysis to two well-known papers. We confirm our theoretical analysis with Monte Carlo simulations.

DOI

10.1162/rest.89.2.221

Volume

89 (2)

Pages

221-233

Language

en

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