I just wish people would learn to think about counterfactuals. Counterfactuals and policy analysis in structural models arxiv. What is missing from the term impact evaluation is the way impact shows up longterm. It isnt taught properly in economics courses, although essential in competition analysis and also in good econometrics, including estimating the effect of introducing a lowpriced copy of a consumer good into a market. In particular, they simulate counterfactual histories of the level of inflation under alternative policy regimes. Statistical simulation and counterfactual analysis in social sciences francois gelineau, pierreolivier bedard, mathieu ouimet universite laval in this paper, we present statistical simulation techniques of interest in substantial interpretation of regression results. 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. The counterfactual distributions considered are the. This article complements the recent literature analysing the effects.
A note on the impact evaluation of public policies. Counterfactual causality and empirical research in. An econometric evaluation of unconventional monetary policy in the us, authoralizamin jafarli, year2017. To some, counterfactual analysis is central to comparative inquiry because such research.
Abstract the counterfactual package implements the estimation and inference methods of cher nozhukov et al. The utility of causal knowledge in economics is captured in humes. The macroeconomic effects of the canadaus free trade. The evolution of bad debts in italy during the global financial crisis and the sovereign debt crisis. Heckman is well known for his work on the evaluation of programs for helping workers more effectively enter and function in the labor market. In its simplest form, counterfactual impact evaluation cie is a method of comparison which involves comparing the outcomes of interest of those having benefitted from a policy or programme the treated group with those of a group similar in all respects to the treatment group the comparisoncontrol group, the only difference being that the comparisoncontrol group has not been exposed to the.
Counterfactuals explanation and examples conceptually. An r package for counterfactual analysis by mingli chen, victor chernozhukov, ivan fernandezval and blaise melly abstract the counterfactual package implements the estimation and inference methods of chernozhukov et al. Counterfactual analysis of inequality and social mobility. Econometric analysis and counterfactual studies in the. Then, we present a methodology that combines such regional and aggregate data to estimate a mediumscale new keynesian dsge model and do quantitative analysis.
In this article, we develop modeling and inference tools for counterfactual distributions based on regression methods. We can do this for counterfactuals as well as for factuals. A read is counted each time someone views a publication summary such as the title, abstract, and list of authors, clicks on a figure, or views or downloads the fulltext. Because historical episodes allow diverse interpretations, many conclusions of macroeconomics are not coercive. Introduction counterfactuals are a hot topic in economics today, at least among economists concerned with methodology. But at best they provide a sometimes way for finding. The goal of eu merger control is to prevent transactions that would significantly impede effective competition. Dec 12, 2011 in this paper, we examine the use of the counterfactual method in eu competition law. The econometric approach stresses the virtue of making these implicit as. Womens earnings and household inequality in oecd countries, 197320 article. A semistructural methodology for policy counterfactuals and an. First, there is the split between event and fact or state of affairs theories.
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. These are the sources and citations used to research counterfactual analysis. Counterfactual distributions are important ingredients for policy analysis and decomposition analysis in empirical economics. This same analysis applies to our choices of career. An empirical investigation into the effects of quantitative easing. The counterfactual analysis methodologies aim at identifying an adequate control group and, as a consequence, the counterfactual outcome and the policy effect.
Macroeconomic effects of the european monetary union. 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. 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. Building on the global var framework designed by pesaran et al. In the first application, i show how to conduct counterfactual analysis with respect to pol icy rule changes, without having to fully specify a. This paper is concerned with ex ante and ex post counterfactual analyses in the.
Campos brunel university and izabonn fabrizio coricelli paris school of economics and ceprlondon luigi moretti university of padova this version. Provided for noncommercial research and educational use only. Counterfactual analysis of the effects of quantitative easing. Counterfactual analysis in macroeconometrics iza institute of. Empirical methods in applied economics lecture notes.
I propose a methodology to conduct counterfactual analysis in a way that. This paper contains an analysis of the nature of counterfactual conditionals and the conditions under which they are considered assertable by scientists. The counterfactual analysis in eu merger control ssrn. The model is now dominant in both statistics and economics, and it is being used with increasing frequency in sociology, psychology, and political. Counterfactual conditional statements are ubiquitous in any scientific endeavour. This bibliography was generated on cite this for me on wednesday, july 15, 2015.
In the counterfactual modeling tradition, attention is focused on estimating various average causal e. Countryspecic oil supply shocks and the global economy. In its simplest form, counterfactual impact evaluation cie is a method of comparison which involves comparing the outcomes of interest of those having benefitted from a policy or programme the treated group with those of a group similar in all respects to the treatment group the comparisoncontrol group, the only difference being that the comparisoncontrol group has not been. The counterfactual analysis jonathan bennett syracuse university two distinctions philosophical theories of causation can be split two ways, into four groups. It is estimated that a 100 basis points reduction in the spread due to qe has an impact effect on output growth of about one percentage point, but the policy impact is very quickly reversed with no statistically significant.
Structural estimation and counterfactual experiments. A counterfactual conditional abbreviated cf, is a conditional with a false ifclause. The term counterfactual has a variety of distinct, though connected, uses in philosophy, history, economics and statistics. Counterfactual thinking dominates reasoning in polit ical science and economics. Researchers with a background in economics and statistics. Jun 16, 2012 the analysis is applied to the evaluation of the effects of the quantitative easing qe in the uk after march 2009. Dsge models and counterfactual analysis request pdf. The counterfactual method, which can be used to assess the effects of an actual or a hypothetical event, has always played an important role in eu competition l skip to main content download this paper.
The problem of causality in macroeconomics england has not a guinea at our service. Likewise, dueker and nelson 2003 use bayesian analysis to simulate counterfactual histories of several macroeconomic variables given alternative realizations of a latent business cycle indicator. A key variable in such a strategy is frequently the outcome of interest in a period before the treatment. 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. April 20 comments are welcome but please do not quote, cite or distributeupload this preliminary draft. The rpackage counterfactualimplements the estimation and inference methods of chernozhukov et al. Macro and micro economic counterfactuals and performativity. The abc of counterfactuals the enlightened economist. Frankly, most of economics is made of counterfactuals, if you define a counterfactual as a scenario delimiting events that are possible, but which will not happen. The critical step in any causal analysis is estimating the counterfactual a prediction of what would have happened in the absence of the treatment.
Counterfactual equivalence in macroeconomics martin berajay august 7, 2017 abstract counterfactuals in structural models are the leading paradigm for analyzing policy rule changes because they are immune to lucas critique. Real e ective exchange rate misalignment in the euro area. However, they are less credible whenever they lack robustness to variations in primitives across models, which is. Bayesian counterfactual analysis of the sources of the. Counterfactuals, policy analysis, policy ineffectiveness test, macroeconomics, quantitative easing qe.
Inference on counterfactual distributions chernozhukov. In this paper, we examine the use of the counterfactual method in eu merger control. 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. A counterfactual analysis by constantin colonescu this is an empirical study on the effects of adopting a common currency, the euro, on a countrys gdp, inflation rate, and public debt. The counterfactual analysis of cause 393 in mind that the notion of a cause is being employed, not the notion of the cause or causing. Econometric analysis and counterfactual studies in the context of ia practices. After hume, the dominant strategy in the analysis of causality has been reductive. This is an elementary introduction to causal inference in economics written for readers familiar with machine learning methods. These methods became the standard approach to identify the causal policy effects in most institutions and international. Differencesindifferences strategies are simple paneldata methods applied to sets of group means in cases when certain groups are exposed to. In many ways, such a counterfactual analysis is an accounting exercise that is strongly descriptive in nature. First order approximation may best be introduced in its relation to simulation, a methodology that is a staple in industrial organization and other elds of economics.
Counterfactuals and policy analysis in structural models. This paper addresses the rst order approximation of counterfactual price e ects in oligopoly models. Cunha, heckman, and navarro counterfactual analysis of. A counterfactual analysis abstract the aim of this paper is to gauge quantitatively the macroeconomic costs or gains of emu membership. Counterfactual theories of causation stanford encyclopedia. In our analysis, we distinguish between ex ante control merger control and article 101 selfassessment and ex post scenarios investigations under articles 101 and 102, damages litigation. Statistical simulation and counterfactual analysis in. Structural estimation and counterfactual experiments in. This is an empirical study on the effects of adopting a common currency, the euro, on.
We can also do counterfactual social mobility analysis. I thought the 15 questions and answers might be of more general interest, so i have reproduced it below. Event theories give pride of place to causal statements such as. The counterfactual method, which can be used to assess the effects of an actual or a hypothetical event, has always played an important role in eu competition law. Guide on quantifying antitrust damages, which contain a detailed analysis of various counterfactuals. 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. There are a range of accepted approaches to determining an appropriate comparison group for counterfactual analysis, using either prospective ex ante or retrospective ex post evaluation design. An r package for counterfactual analysis mingli chen, victor chernozhukov, ivan fernandezval and blaise melly, the r journal 2017 9. Evolutionary economics and the counterfactual threat. In this paper, we examine the use of the counterfactual method in eu competition law. In the heated debate over net neutrality, the effects of regulation on investment are a central concern, with special attention given to the presence or absence of investment effects from the fccs 2010 proposal and subsequent controversial 2015 decision to reclassify broadband internet access as a common carrier telecommunications service under title ii of the communications act. Bayesian counterfactual analysis of the sources of the great moderation kim changjin,a james morleyb and jeremy pigerc a deparment of economics, korea university, seoul, korea. Differenceindifferences an overview sciencedirect topics.
The critical step in any causal analysis is estimating the counterfactuala prediction of what would have happened in the absence of the treatment. The paper then applies this analysis to the use of counterfactuals in evolutionary economics, arguing that because evolutionary economics is inherently. Tau macroeconomics workshop, and the members of the forums that were convened by. The conditional counterfactual that is the basic idea in science.
On the first order approximation of counterfactual price e. Counterfactuals university of california, berkeley. The counterfactual conditional is the basis of experimental methods for establishing causality in the natural and social sciences, e. Statisticians who reject the explicit construction of models of counterfactuals nonetheless do so implicitly when they come to conducting empirical studies of causal models. 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. The term counterfactual conditional was coined by nelson goodman in 1947, extending roderick chisholms 1946 notion of a contrarytofact conditional. Hashem pesaran university of southern california and trinity college cambridge ron p smith birkbeck, university of london june 2014. We can do a parallel analysis for those who switch from s 1 to s 0. Ex post facto probability increase the major motivating idea for a probabilistic analysis of cause was that the. Daniel hausman tells us counterfactual reasoning should permit one to work out the implications of counterfactual suppositions, so as to be prepared in case. 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. Countryspecific oil supply shocks and the global economy. The second counterfactual, therefore, couldonlybetrueifno. A well known issue in the international macroeconomics literature is.
Statisticians who reject the explicit construction of models of counterfactuals nonetheless do so implicitly when they come to conducting empirical studies of causal models in practice. 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. Statistical simulation and counterfactual analysis in social. The abc of counterfactuals enlightenment economics. The powerful techniques used in machine learning may. Department of economics, university of washington, seattle, washington, usa b department of economics, washington university, st louis, missouri, usa. Taking stock of recent literature on causality, we. The key challenge in impact evaluation is that the counterfactual cannot be directly observed and must be approximated with reference to a comparison group. Pearl 2009 provides an overview of the concepts and develops an analysis of causality based on structural models. Between complexity and parsimony limited diversity. Limited diversity, counterfactual cases, and comparative analysis charles c. Counterfactual equivalence in macroeconomics updated version of my job market paper, june 2019 slides.
Econometric analysis and counterfactual studies in the context of ia. The macroeconomic impact of the sovereign debt crisis. Usually the counterfactuals on offer are proposed as causal surrogates. We evaluate the macroeconomic effects of the canadaus free trade agreement fta on canadas economy using a counterfactual analysis. Germany were not punished so severely at the end of. I shall also discuss economist stephen leroy, who has been arguing for a similar view for a long time, but who does not use the term counterfactual to describe it. If youre looking for a free download links of macroeconomics pdf, epub, docx and torrent then this site is not for you. It has recently gained further traction as the commission endeavors to adopt an effectsbased approach under articles 101 and 102 tfeu. In philosophy counterfactual scenarios are often used in the analysis of causality, e.
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