Five Minute Summary: Treatment Effects in Interactive Fixed Effects Models
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Sonia Karami and I just posted a new version of our paper Treatment Effects in Interactive Fixed Effects Models.
Connection between Difference in Differences and Interactive Fixed Effects Models
A lot of my research has involved identifying treatment effect parameters in a difference in differences (DID) framework. For DID, the main identifying assumption is the parallel trends assumption:
Parallel Trends Assumption \(\mathbb{E}[\Delta Y_t(0) | D=1] = \mathbb{E}[\Delta Y_t(0) | D=0]\)
Parallel trends assumptions are very closely related to the following model for untreated potential outcomes:
\(Y_{it}(0) = \theta_t + \eta_i + U_{it}\) where $\theta_t$ is a time fixed effect, $\eta_i$ is an individual fixed effect, and $U_{it}$ are idiosyncratic time varying unobservables.