Cemmap Working Paper (CWP62/17)

An exact and robust conformal inference method for counterfactual and synthetic controls

Date: 26 December 2017
Publisher: The IFS

This paper introduces new inference methods for counterfactual and synthetic control methods for evaluating policy effects. Our inference methods work in conjunction with many modern and classical methods for estimating the counterfactual mean outcome in the absence of a policy intervention. Specifically, our methods work together with the difference-in-difference, canonical synthetic control, constrained and penalized regression methods for synthetic control, factor/matrix completion models for panel data, interactive fixed effects panel models, time series models, as well as fused time series panel data models. The proposed method has a double justification. (i) If the residuals from estimating the counterfactuals are exchangeable as implied, for example, by i.i.d. data, our procedure achieves exact finite sample size control without any assumption on the specific approach used to estimate the counterfactuals. (ii) If the data exhibit dynamics and serial dependence, our inference procedure achieves approximate uniform size control under weak and easy-to-verify conditions on the method used to estimate the counterfactual. We verify these condition for representative methods from each group listed above. Simulation experiments demonstrate the usefulness of our approach in finite samples. We apply our method to re-evaluate the causal effect of election day registration (EDR) laws on voter turnout in the United States.