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Pitfalls in counterfactual analyses of policy rules

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  • Robert Rasche

Abstract

This analysis examines the validity of utilizing a subset of reduced form equations, such as from a VAR model, for the construction of counterfactual policy analyses. It is shown that the omission of one of the estimated reduced form (VAR) equations and the substitution of a counterfactual policy rule to complete the model severely limits the admissible structure of the economic model that could have generated the historical data. Copyright Kluwer Academic Publishers 1995

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File URL: http://hdl.handle.net/10.1007/BF01000080
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Bibliographic Info

Article provided by Springer in its journal Open Economies Review.

Volume (Year): 6 (1995)
Issue (Month): 3 (July)
Pages: 199-202

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Handle: RePEc:kap:openec:v:6:y:1995:i:3:p:199-202

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Web page: http://www.springerlink.com/link.asp?id=100323

Related research

Keywords: policy analysis; reduced forms; VAR;

References

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  1. Bordo, Michael D & Choudhri, Ehsan U & Schwartz, Anna J, 1995. "Could Stable Money Have Averted the Great Contraction?," Economic Inquiry, Western Economic Association International, vol. 33(3), pages 484-505, July.
  2. Bennett T. McCallum, 1993. "Specification and Analysis of a Monetary Policy Rule for Japan," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 11(2), pages 1-45, December.
  3. Mccallum, Bennet T., 1988. "Robustness properties of a rule for monetary policy," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 29(1), pages 173-203, January.
  4. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
  5. John P. Judd & Brian Motley, 1992. "Controlling inflation with an interest rate instrument," Economic Review, Federal Reserve Bank of San Francisco, pages 3-22.
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Cited by:
  1. Horrace, William C., 1998. "Submodel estimation of a structural vector error correction model under cointegration," Economics Letters, Elsevier, vol. 59(1), pages 23-29, April.
  2. Thornton, Saranna Robinson, 2000. "How do broader monetary aggregates and divisia measures of money perform in McCallum's adaptive monetary rule?," Journal of Economics and Business, Elsevier, vol. 52(1-2), pages 181-204.
  3. Thornton, Saranna R., 1998. "Suitable policy instruments for monetary rules," Journal of Economics and Business, Elsevier, vol. 50(4), pages 379-397, July.

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