Working Paper: NBER ID: w9063
Authors: Eric M. Leeper; Tao Zha
Abstract: We construct linear projections of macro variables conditional on hypothetical paths of monetary policy, using as an example an identified VAR model. Hypothetical policies are restricted to ones where both the policy intervention and its impacts are consistent with history -- otherwise the linear projections are likely to be unreliable. We use the approach to interpret Federal Reserve decisions, modeling their frequent reassessment in light of new information about the tradeoffs policymakers face. The interventions we consider matter: they can shift projected paths and probability distributions of macro variables in economically meaningful ways.
Keywords: No keywords provided
JEL Codes: E52; E47; C53
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Policy interventions (D78) | Shift in projected paths and probability distributions of macroeconomic variables (E37) |
| Policy behavior (D78) | Causal link between interventions and changes in macro variables (E65) |
| Nature of intervention (C90) | Impact on effectiveness of interventions (I24) |
| Elasticities of private behavior (H30) | Impact on effectiveness of interventions (I24) |
| Incremental policy decisions (D78) | Reasonableness of Federal Reserve actions (E52) |