Pre-event trends in the panel event-study design

Abstarct:

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, such as estimation following a test for pre-trends, perform poorly.