Joint Macroeconomics-Econometrics Seminar - Chris Wolf (MIT)

Abstract: We present a novel approach to constructing macroeconomic policy counterfactuals. Our method begins with available evidence on the effects of policy shocks on the macro-economy, and then uses additional structural assumptions to extrapolate beyond those observed policy experiments. This extrapolation of policy transmission is the sole purpose of the structure—all other inputs to our method are estimable in reduced-form. We then apply the method to study monetary policy counterfactuals, using several “canonical” macro models—-from RANK, to HANK, and to behavioral models—to extrapolate beyond the available evidence on monetary policy propagation. While RANK and HANK extrapolate similarly and thus imply almost identical counterfactuals, behavioral models extrapolate differently at long horizons, which matters for some counterfactuals.

Location: G01 Euston Road (222)