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A simple test of parallel pre-trends for Differences-in-Differences

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  • Riveros-Gavilanes, J. M.

Abstract

Traditional tests for parallel trends in the context of differences-in-differences are based on the observation of the mean values of the dependent variable in the treatment and control groups over time. However, given the new discussions brought by the development of the event study designs, it is clear that controlling for observable factors may intervene in the fulfilment of the parallel trend as-sumption. This article presents a simple test based on the statistical significance of pre-treatment periods which can be extended from the classic differences-in-differences up to event study designs in universal absorbing treatments. The test requires at least two pre-treatment periods and can done by constructing appro-priate dummy variables.

Suggested Citation

  • Riveros-Gavilanes, J. M., 2023. "A simple test of parallel pre-trends for Differences-in-Differences," MPRA Paper 119367, University Library of Munich, Germany, revised 2023.
    • Handle: RePEc:pra:mprapa:119367
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    References listed on IDEAS

    as
    1. Simon Freyaldenhoven & Christian Hansen & Jesse M. Shapiro, 2019. "Pre-event Trends in the Panel Event-Study Design," American Economic Review, American Economic Association, vol. 109(9), pages 3307-3338, September.
    2. Callaway, Brantly & Sant’Anna, Pedro H.C., 2021. "Difference-in-Differences with multiple time periods," Journal of Econometrics, Elsevier, vol. 225(2), pages 200-230.
    3. Michelle Marcus & Pedro H. C. Sant’Anna, 2021. "The Role of Parallel Trends in Event Study Settings: An Application to Environmental Economics," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 8(2), pages 235-275.
    4. Goodman-Bacon, Andrew, 2021. "Difference-in-differences with variation in treatment timing," Journal of Econometrics, Elsevier, vol. 225(2), pages 254-277.
    5. Sun, Liyang & Abraham, Sarah, 2021. "Estimating dynamic treatment effects in event studies with heterogeneous treatment effects," Journal of Econometrics, Elsevier, vol. 225(2), pages 175-199.
    6. Jonathan Roth & Pedro H. C. Sant'Anna, 2023. "When Is Parallel Trends Sensitive to Functional Form?," Econometrica, Econometric Society, vol. 91(2), pages 737-747, March.
    7. Jonathan Roth, 2022. "Pretest with Caution: Event-Study Estimates after Testing for Parallel Trends," American Economic Review: Insights, American Economic Association, vol. 4(3), pages 305-322, September.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    difference in difference; parallel trend test; treatment.;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General

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