Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/89904
Authors: 
Brewer, Mike
Crossley, Thomas F.
Joyce, Robert
Year of Publication: 
2013
Series/Report no.: 
IZA Discussion Paper 7742
Abstract: 
A growing literature on inference in difference-in-differences (DiD) designs with grouped errors has been pessimistic about obtaining hypothesis tests of the correct size, particularly with few groups. We provide Monte Carlo evidence for three points: (i) it is possible to obtain tests of the correct size even with few groups, and in many settings very straightforward methods will achieve this; (ii) the main problem in DiD designs with grouped errors is instead low power to detect real effects; and (iii) feasible GLS estimation combined with robust inference can increase power considerably whilst maintaining correct test size – again, even with few groups.
Subjects: 
difference in differences
hypothesis test
power
cluster robust
feasible GLS
JEL: 
C12
C13
C21
Document Type: 
Working Paper

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