Empirical methods for macroeconomic policy analysis

Abstract: We show that, in a general family of linearized structural macroeconomic models, the counterfactual evolution of the economy under alternative policy rules is fully pinned down by two empirically estimable objects: (i) reduced-form projections with respect to a large information set; and (ii) the causal effects of policy shocks on macroeconomic aggregates. Under our assumptions, the derived counterfactuals are fully robust to the Lucas critique. Building on these insights, we discuss how to leverage the classical “VAR” approach to policy shock estimation to learn about systematic policy rule counterfactuals. The presentation will be based on two papers: McKay and Wolf (2023, ECMA) and Caravello, McKay and Wolf (2023, WP).

Bio: Christian Wolf is an Assistant Professor of Economics at MIT, and a Faculty Research Fellow at the National Bureau of Economic Research (NBER). He earned his doctorate at Princeton University. His research interests include macroeconomics, monetary economics, and time series econometrics.