Pretest with Caution: Event-Study Estimates after Testing for Parallel Trends
- (pp. 305-22)
AbstractThis paper discusses two important limitations of the common practice of testing for preexisting differences in trends ("pre-trends") when using difference-in-differences and related methods. First, conventional pre-trends tests may have low power. Second, conditioning the analysis on the result of a pretest can distort estimation and inference, potentially exacerbating the bias of point estimates and under-coverage of confidence intervals. I analyze these issues both in theory and in simulations calibrated to a survey of recent papers in leading economics journals, which suggest that these limitations are important in practice. I conclude with practical recommendations for mitigating these issues.
CitationRoth, Jonathan. 2022. "Pretest with Caution: Event-Study Estimates after Testing for Parallel Trends." American Economic Review: Insights, 4 (3): 305-22. DOI: 10.1257/aeri.20210236
- A14 Sociology of Economics
- C23 Single Equation Models; Single Variables: Panel Data Models; Spatio-temporal Models
- C51 Model Construction and Estimation