A Semistructural Methodology for Policy Counterfactuals

Martin Beraja

Journal of Political Economy, 2023, vol. 131, issue 1, 190 - 201

Abstract: I propose a methodology for constructing counterfactuals with respect to changes in policy rules that does not require fully specifying a particular model yet is not subject to Lucas critique. It applies to a class of dynamic stochastic models whose equilibria are well approximated by a linear representation. It rests on the insight that many such models satisfy a principle of counterfactual equivalence: they are observationally equivalent under a benchmark policy and yield an identical counterfactual equilibrium under an alternative one.

Date: 2023
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