A More Credible Approach to Parallel Trends

🤖 Plain-English Summary

Abstract This paper proposes tools for robust inference in difference-in-differences and event-study designs where the parallel trends assumption may be violated. We illustrate how economic knowledge can inform the restrictions on the possible violations of parallel trends in two economic applications.

🔑 Key Findings

• Instead of requiring that parallel trends holds exactly, we impose restrictions on how different the post-treatment violations of parallel trends can be from the pre-treatment differences in trends (“pre-trends”).
• The causal parameter of interest is partially identified under these restrictions.
• We introduce two approaches that guarantee uniformly valid inference under the imposed restrictions, and we derive novel results showing that they have desirable power properties in our context.

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