Modern Diference-in-Diferences (ECO-AD-CAUINF)


Department ECO
Course category ECO Advanced courses
Course type Course
Academic year 2021-2022
Term BLOCK 1
Credits ,5 (EUI Economics Department)
  • Lecturer Mirjam Reutter (Max Weber Fellow)
Contact Simonsen, Sarah


Course description
Diference-in-Diferences approaches are one of the most popular and powerful tools for causal inference in use today. In the last years, there was an explosion of work on DiD methods that has made it very dicult to keep track of rapidly changing standards. This
course will begin with the basic DiD design using two-way fixed effects and discuss stateof-the-art applications. It will cover extensions like staggered treatment adoption, heterogeneous treatment effects, interference, and matching. We will work through assumptions, diagnostics, practical examples and code in R and Stata (if available). Moreover, students will present and discuss extensions of the classical DiD design with practical examples from recent papers.

Course Work (10 hours mini course)
• Participation in the paper and presentation discussions (20%)
• Presentation of a research paper (80%)


Details and additional references (preliminary)

  1. Introduction to VARs
    1. Mapping with DSGE models
    2. Wold Theorem
  • Fernández-Villaverde, J., Rubio-Ramírez, J. F., Sargent, T. J., Watson, M. W., (2007): “ABCs (and Ds) of understanding VARs”, American Economic Review
  1. VAR specification & estimation
    1. Non-stationarity
    2. Lag-length & variables
    3. Estimation in unrestricted VARs
    4. Estimation in restricted VARs
  • Stock J., (1987) “Asymptotic Properties of Least Squares Estimators of Cointegrating Vectors”, Econometrica
  • Stock, J., Sims, C., Watson, M., (1990): “Inference in linear time series models with some unit roots”, Econometrica
  1. Primer on New Keynesian models
    1. Foundations
    2. Monetary policy
  • Christiano L.J., Eichenbaum M., and Evans C.L., (2005): “Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy”, Journal of Political Economy
  • Galì J., (2018): “The State of New Keynesian Economics: A Partial Assessment”, Journal of Economic Perspectives
  1. Structural VARs
    1. Impulse response function
    2. Forecast error variance decomposition
    3. Historical decomposition
  1. Identification strategies
    1. Zero Short-Run restrictions
    2. Zero Long-Run restrictions
    3. Medium Run restrictions
    4. Sign Restrictions
    5. Testing Invertibility
    6. External Instruments
  • Christiano L.J., Eichenbaum M., and Evans C.L., (1999): “Monetary policy shocks: What have we learned and to what end?”, Handbook of Macroeconomics - Chapter 02
  • Stock, J.H. Watson, M.W. (2001): “Vector Autoregressions”, Journal of Economic Perspectives
  • Blanchard, O.J. and Quah, D. (1989): "The Dynamic Effects of Aggregate Demand and Supply Disturbances," American Economic Review
  • Uhlig H., (2005): "What are the effects of monetary policy on output? Results from an agnostic identification procedure," Journal of Monetary Economics
  • Wolf, C. K. (2020): "SVAR (Mis)identification and the Real Effects of Monetary Policy Shocks," American Economic Journal: Macroeconomics
  • Beaudry P., Feve P., Guay A., and Portier F. (2020): "When is Nonfundamentalness in SVARs a Real Problem?" Review of Economic Dynamics
  • Forni, M, Gambetti, L, Sala, L. (2019): “Structural VARs and noninvertible macroeconomic models,” Journal of Applied Econometrics
  • Forni, M., Gambetti, L. (2014): “Sufficient information in structural VARs”, Journal of Monetary Economics
  • Stock, J., and Watson M (2012): “Disentangling the Channels of the 2007-2009 Recession,” Brookings Papers on Economic Activity
  • Mertens, K. and M. O. Ravn (2013): “The Dynamic Effects of Personal and Corporate Income Tax Changes in the United States,” American Economic Review
  • Gertler, M. and P. Karadi (2015): “Monetary Policy Surprises, Credit Costs, and Economic Activity,” American Economic Journal: Macroeconomics
  • Noh, E. (2018): “Impulse-response analysis with proxy variables,” Mimeo.
  • Paul, P. (2020): “The Time-Varying Effect of Monetary Policy on Asset Prices,” The Review of Economics and Statistics
  1. Local Projections
    1. LP-IV
  • Jordà, Ò. (2005): "Estimation and Inference of Impulse Responses by Local Projections," American Economic Review
  • Ramey V. (2016) “Macroeconomic Shocks and Their Propagation,” Handbook of Macroeconomics
  • Stock, J. H. and M. W. Watson (2018): “Identification and Estimation of Dynamic Causal Effects in Macroeconomics Using External Instruments,” The Economic Journal
  1. Comparison VARs and Local Projections
  • Plagborg-Møller, Mikkel, and C. K. Wolf (Forth): “Local Projections and VARs Estimate the Same Impulse Responses,” Econometrica
  • Herbst E.P., and B.K. Johannsen (2020): “Bias in Local Projections,” Finance and Economics Discussion Series 2020-010. Washington: Board of Governors of the Federal Reserve System

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Page last updated on 21 September 2018

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