Does economic policy matter? A note on the narrative approach and exact inference

Mikael Carlsson

Economics Letters, 2025, vol. 251, issue C

Abstract: This note examines uncertainty in time-series inference from rare episodes, focusing on the narrative approach. A small number of randomly drawn episodes may falsely suggest policy effects because they are associated with macroeconomic shocks that do not cancel out in inference. We illustrate this using Fisher-style exact inference. Applying our test to Romer and Romer’s (2023) analysis, we find substantial uncertainty. Although the unemployment rate’s peak response to an identified monetary contraction exceeds the 95-percent confidence bands of the counterfactual distribution based on randomly drawn months—suggesting systematic policy effects—this finding is reversed once additional controls are included.

Keywords: Narrative policy shocks; Exact inference (search for similar items in EconPapers)
JEL-codes: C12 E52 E62 E65 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S016517652500151X
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:251:y:2025:i:c:s016517652500151x

DOI: 10.1016/j.econlet.2025.112314

Access Statistics for this article

Economics Letters is currently edited by Economics Letters Editorial Office

More articles in Economics Letters from Elsevier
Bibliographic data for series maintained by Catherine Liu ().