We provide sufficient conditions to identify the causal effect of the policy by exploiting covariates related to the policy only through the confounds. Our model implies a set of moment equations that are linear in parameters. The effect of the policy can be estimated by 2SLS, and causal inference is valid even when endogeneity leads to pre-event trends ("pre-trends") in the outcome. Alternative approaches perform poorly in our simulations.
Pre-event Trends in the Panel Event-Study Design
WP 19-27 - We consider a linear panel event-study design in which unobserved confounds may be related both to the outcome and to the policy variable of interest.