Five Minute Summary: Treatment Effects in Interactive Fixed Effects Models


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.

Identification Challenges

Our Idea

The Rest of the Paper…