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Policy Evaluation in Uncertain Economic Environments

Author

Listed:
  • William A. Brock

    (University of Wisconsin)

  • Steven N. Durlauf

    (University of Wisconsin)

  • Kenneth D. West

    (University of Wisconsin)

Abstract

This paper develops a general framework for economic policy evaluation. Using ideas from statistical decision theory, it argues that conventional approaches fail to appropriately integrate econometric analysis into evaluation problems. Further, it is argued that evaluation of alternative policies should explicitly account for uncertainty about the appropriate model of the economy. The paper shows how to develop an explicitly decision-theoretic approach to policy evaluation and how to incorporate model uncertainty into such an analysis. The theoretical implications of model uncertainty are explored in a set of examples, with a specific focus on how to design policies that are robust against such uncertainty. Finally, the framework is applied to the evaluation of monetary policy rules and to the analysis of tariff reductions as a way to increase aggregate economic growth.

Suggested Citation

  • William A. Brock & Steven N. Durlauf & Kenneth D. West, 2003. "Policy Evaluation in Uncertain Economic Environments," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(1), pages 235-322.
  • Handle: RePEc:bin:bpeajo:v:34:y:2003:i:2003-1:p:235-322
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    More about this item

    Keywords

    macroeconomics; Policy Evaluation; Uncertain Economic Environments;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General

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