Prologue
Goodman-Bacon (2021, forthcoming) is a decomposition of the coefficient from a panel fixed effects estimate with time dummies (“twoway fixed effects” or TWFE) of a static treatment parameter into average causal effects and bias terms under differential timing. His decomposition revealed that TWFE needs parallel trends as always thought but also must restrict the dynamics of treatment heterogeneity. Once we introduce heterogeneity in the treatment effects over time, an unadjusted TWFE estimation of the static parameter will be biased, and may even flip signs, which is worrisome given our uncertainty about what effects sometimes to even a priori expect.
Is the problem the static parameter? If so, then maybe we can circumvent this entirely by estimating dynamic regressions, such as are done in contemporary difference-in-differences event studies. But a recent 2020 article at the Journal of Econometrics by Liyang Sun and Sarah Abraham shows that the coefficients on lead and lag …
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