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What Can Time-Series Regressions Tell Us About Policy Counterfactuals?
We show that, in a general family of linearized structural macroeconomic models, knowledge of the empirically estimable causal effects of contemporaneous and news shocks to the prevailing policy rule is sufficient to construct counterfactuals under alternative policy rules. If the researcher is willing to postulate a loss function, our results furthermore allow her to recover an optimal policy rule for that loss. Under our assumptions, the derived counterfactuals and optimal policies are robust to the Lucas critique. We then discuss strategies for applying these insights when only a limited ...
Briefing
Why Are Economists Still Uncertain About the Effects of Monetary Policy?
Despite decades of research, there remains substantial uncertainty about the quantitative effects of monetary policy. Different models produce conflicting predictions, and these predictions lack precision. This article discusses some reasons for these issues. In addition to the relative lack of data, the structure of the economy has continued to evolve, posing challenges for empirical macroeconomic analysis more generally. Economists have been confronting these challenges by developing tools to jointly consider a range of models and continuing to seek new sources of data.