Counterfactual equivalence in macroeconomics martin berajay february 7, 2018 abstract when studying counterfactual policy rules using structural models, researchers are often uncertain about features of the economy that are dif. The counterfactual analysis of cause 391 due to diagnonalizability. In his other famous book, economic analysis, he similarly remarks. Dsge models and counterfactual analysis request pdf. But failure of transitivity due to diagonalizability plagues causal relevance as well, not just the relation of being a cause. An empirical investigation into the effects of quantitative easing this paper is concerned with ex ante and counterfactual analyses in the case of ex post macroeconometric applications where a single unit is observed before and after a given policy intervention.
The counterfactual analysis methodologies aim at identifying an adequate control group and, as a. By following an approach to macroeconomics that is consistent with current macroeconomic research, you become better prepared for advanced study in economics. I am really interested in the idea of counterfactuals and their place in social scientific knowledge. Counterfactual speculation may sometimes be the only way to make causal. In the first application, i show how to conduct counterfactual analysis.
Introduction counterfactuals are a hot topic in economics today, at least among economists concerned with methodology. A concise but rigorous and thorough introduction to modern macroeconomic theory. This book is meant for the intermediate macroeconomics course. To some, counterfactual analysis is central to comparative inquiry because such research. The study of counterfactual speculation has increasingly engaged the interest of scholars in a wide range of domains such as philosophy, human geography. This chapter was originally published in the book philosophy of economics. International trade and investment, international finance and macroeconomics this paper presents a structural macro simulation model to quantify the effects of alternative stabilization. Counterfactual analyses have received a good deal of attention in recent years, resulting in a host of counterexamples and objections to the simple analysis and its descendants. The term counterfactual conditional was coined by nelson goodman in 1947, extending roderick chisholms 1946 notion of a contrarytofact conditional. Counterfactual analysis suggests that an increase in the probability of being discovered and in the penalty surcharge, along with a moderate tax reduction, causes a sensitive reduction in the size. The counterfactual analysis of causation became a focus of philosophical debate after the 1973 publication of the late david lewiss groundbreaking paper, causation, which argues against the previously accepted regularity analysis and in favor of what he called the promising alternative of the counterfactual analysis. In a static model, this exists when there are appropriate non. After hume, the dominant strategy in the analysis of causality has been reductive. Nevertheless, the general techniques of project analysis are applicable to such projects.
Nov 10, 2008 krugman explicitly models a counterfactual what real gdp wants to be, but cant attain due to unemployment above the natural rate. More recently, eric foner is reported to have found. Michael oakeshott described counterfactual reasoning as a monstrous incursion of science into the world of history quoted in ferguson, 1999. Carr argued that a historian should never deal in speculation about what did not happen carr, 1961, 127. The case for counterfactual impact evaluation is based on the need to collect evidence and determine whether policy objectives have been met and, ultimately, whether the resources were used efficiently. Causality in macroeconomics, the economic journal 10. This paper is concerned with ex ante and ex post counterfactual analyses in the. The questions to be faced are partly philosophical what. Causality in macroeconomics pdf ebook download free. While influential economists for a long time have called for the euthanasia of macroeconomics, kevin hoover demonstrates, in his book from that year, that macroeconomics is a separate science, requiring its own methodology, epistemology, and ontology, and is full of life. This work analyzes the macroeconomic impact of the euroarea sovereign debt crisis on the italian economy by estimating the contribution of the main transmission channels underlying the recessionary dynamics at play since the second half of 2011.
The macroeconomic impact of the sovereign debt crisis. Provided for noncommercial research and educational use only. Two thousand one was a good year for macroeconomics. Browse macroeconomics news, research and analysis from the conversation. The counterfactual analysis jonathan bennett syracuse university two distinctions philosophical theories of causation can be split two ways, into four groups. I just wish people would learn to think about counterfactuals. Counterfactuals university of california, berkeley. Okuns law tells krugman that every excess point of unemployment above 5 means a 2% output gap. Limited diversity, counterfactual cases, and comparative analysis charles c. Therefore, we have adopted herein a counterfactual analysis in the same way as in. An empirical investigation into the effects of quantitative easing.
The abc of counterfactuals economics and business books. Reflections on american jewish history and identity. The term counterfactual has a wide range of uses in philosophy, history, economics and statistics. The counterfactual and the factual notes on liberty. The counterfactual and the factual 08112017 08112017 mark koyama economics, history counterfactuals, david hume, methodology, theory historians often appear skeptical of counterfactual arguments. First, there is the split between event and fact or state of affairs theories. These answers feed back into the design and implementation of future interventions and budgetary decisions. In this paper, i propose a novel method for addressing these and other. Counterfactual theories of causation stanford encyclopedia. European commission uses the counterfactual analysis somewhat parsimoniously in its evaluation and exante policy impact assessment guidelines, which still rely on simple impact indicators martini, 2008 and on baseline scenarios that, in most cases, are not defined according to the counterfactual framework.
What is missing from the term impact evaluation is the way impact shows up longterm. An empirical investigation into the effects of quantitative easing this paper is concerned with ex ante and counterfactual analyses in the case of ex post macroeconometric applications where a single unit is observed before and after a. Provides a concise introduction to micro and macroeconomics. Ragin and john sonnett 1 overview counterfactual analysis has a long and distinguished history in comparative research. Usually the counterfactuals on offer are proposed as causal surrogates.
The counterexamples are often complex and can seem baroque to the outsider indeed, even to the insider, and it may be tempting to dismiss them as irrelevant or. For many types of projectsfor example, those in the education and health sectors the benefits are not readily measurable in monetary terms. The concept of propoorness provides a basis for a normative evaluation of these outcomes. Historians often appear skeptical of counterfactual arguments. Islm and modern macroeconomics warren young springer. The policy innovations that followed the recent great recession, such as unconventional monetary policies, prompted. It is concise but rigorous and broad, covering all major areas in mainstream macroeconomics today and showing how macroeconomic models build on and relate to each other. The guiding idea behind counterfactual analyses of causation is the thought that as david lewis puts it we think of a cause as something that makes a difference, and the difference it makes must be a difference from what would have happened without it. Read causality in macroeconomics, the economic journal on deepdyve, the largest online rental service for scholarly research with thousands of academic publications available at. Counterfactual analysis in macroeconometrics iza institute of. The authors use counterfactual decompositions based on both the shapley method and the generalized oaxacablinder framework to identify proximate factors that might explain differences in observed outcomes over time, across regions and households. A counterfactual analysis francois bourguignon, william h.
Macro and micro economic counterfactuals and performativity. Author links open overlay panel jan kuckuck frank westermann 1. Book 1 of 6 kindle edition by atwater, donald m download it once and read it on your kindle device, pc, phones or tablets. Between complexity and parsimony limited diversity. A counterfactual analysis of the poverty impact of. This book offers an introduction to modern macroeconomic theory. Mapping out the space of possibilities plays an important, explicit role in many kinds of modeling, and an implicit role in many historical accounts such as an excellent history of economics by yuval yonay that i finished today and.
The 6th edition captures the latest developments in macroeconomic thinking, applied to recent economic events and developments in macroeconomic policy. Evolutionary economics and the counterfactual threat 541. Counterfactuals and policy analysis in structural models. The problem of causality in macroeconomics england has not a guinea at our service. A note on the impact evaluation of public policies. This paper is concerned with ex ante and ex post counterfactual analyses in the case of macroeconometric applications where a single unit is observed. Instead, since the counterfactual is a type of forecast and parsimonious models tend to forecast better than complex ones, we may obtain more reliable estimates of the counterfactual outcomes from a parsimonious policy response. Abel, bernanke, and croushore current macroeconomic concept in a method that prepares college students to research actual macroeconomic data utilized by coverage makers and researchers.
Event theories give pride of place to causal statements such as. The selfcontained text begins with models of individual decision makers. A counterfactual conditional abbreviated cf, is a conditional with a false ifclause. Counterfactuals and policy analysis in structural models arxiv.
Evolutionary economics and the counterfactual threat. Causal knowledge lays the groundwork for counterfactual analyses that underwrite economic and political policy judgments. Harcourt brace jovanovich, 1982 macroeconimcs 632 pages. Causality in macroeconomics examines causality while taking macroeconomics seriously. On the other hand, the same economists realize the. This book can also be appropriate for all readers within the area of macroeconomics. The term counterfactual has a variety of distinct, though connected, uses in philosophy, history, economics and statistics. On the one hand, the islm model is still taught by many academic economists or they use it to derive the adas approach. Use features like bookmarks, note taking and highlighting while reading macroeconomic analysis methodology. Shapiro is professor emeritus of history at seton hall university. Nonie guidelines on impact evaluation adopts the oecddac definition of impact while referring to the techniques used to attribute impact to an intervention as necessarily based on counterfactual analysis. In philosophy counterfactual scenarios are often used in the analysis of causality, e. A pragmatic and realistic philosophy is joined to a macroeconomic foundation that refines herbert simons wellknown work on causal order to make a case for a structural approach to causality.
The counterexamples are often complex and can seem baroque to the outsider indeed, even to the insider, and it may be tempting to dismiss them as irrelevant or uninteresting. Macroeconomics news, research and analysis the conversation. International trade and investment, international finance and macroeconomics. Written in an accessible style without sacrificing depth of analysis, this book examines central issues in the public debate on environmental problems and policy, from the perspective of economics.
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