{"title":"Structural counterfactual analysis in macroeconomics: theory and inference","authors":"Endong Wang","doi":"arxiv-2409.09577","DOIUrl":null,"url":null,"abstract":"We propose a structural model-free methodology to analyze two types of\nmacroeconomic counterfactuals related to policy path deviation: hypothetical\ntrajectory and policy intervention. Our model-free approach is built on a\nstructural vector moving-average (SVMA) model that relies solely on the\nidentification of policy shocks, thereby eliminating the need to specify an\nentire structural model. Analytical solutions are derived for the\ncounterfactual parameters, and statistical inference for these parameter\nestimates is provided using the Delta method. By utilizing external\ninstruments, we introduce a projection-based method for the identification,\nestimation, and inference of these parameters. This approach connects our\ncounterfactual analysis with the Local Projection literature. A\nsimulation-based approach with nonlinear model is provided to add in addressing\nLucas' critique. The innovative model-free methodology is applied in three\ncounterfactual studies on the U.S. monetary policy: (1) a historical scenario\nanalysis for a hypothetical interest rate path in the post-pandemic era, (2) a\nfuture scenario analysis under either hawkish or dovish interest rate policy,\nand (3) an evaluation of the policy intervention effect of an oil price shock\nby zeroing out the systematic responses of the interest rate.","PeriodicalId":501293,"journal":{"name":"arXiv - ECON - Econometrics","volume":"26 1","pages":""},"PeriodicalIF":0.0000,"publicationDate":"2024-09-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"arXiv - ECON - Econometrics","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/arxiv-2409.09577","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"","JCRName":"","Score":null,"Total":0}
引用次数: 0
Abstract
We propose a structural model-free methodology to analyze two types of
macroeconomic counterfactuals related to policy path deviation: hypothetical
trajectory and policy intervention. Our model-free approach is built on a
structural vector moving-average (SVMA) model that relies solely on the
identification of policy shocks, thereby eliminating the need to specify an
entire structural model. Analytical solutions are derived for the
counterfactual parameters, and statistical inference for these parameter
estimates is provided using the Delta method. By utilizing external
instruments, we introduce a projection-based method for the identification,
estimation, and inference of these parameters. This approach connects our
counterfactual analysis with the Local Projection literature. A
simulation-based approach with nonlinear model is provided to add in addressing
Lucas' critique. The innovative model-free methodology is applied in three
counterfactual studies on the U.S. monetary policy: (1) a historical scenario
analysis for a hypothetical interest rate path in the post-pandemic era, (2) a
future scenario analysis under either hawkish or dovish interest rate policy,
and (3) an evaluation of the policy intervention effect of an oil price shock
by zeroing out the systematic responses of the interest rate.