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. © 2007 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
CITATION STYLE
Donald, S. G., & Lang, K. (2007). Inference with difference-in-differences and other panel data. Review of Economics and Statistics, 89(2), 221–233. https://doi.org/10.1162/rest.89.2.221
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