Equilibrium Counterfactuals

Gilles Chemla and Christopher A. Hennessy
Additional contact information
Gilles Chemla: DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique
Christopher A. Hennessy: London Business School - London Business School

Post-Print from HAL

Abstract: We incorporate structural modelers into the economy they model. Using traditional moment matching, they treat policy changes as zero probability (or exogenous) "counterfactuals." Bias occurs since real-world agents understand policy changes are positive probability events guided by modelers. Downward, upward, or sign bias occurs. Bias is illustrated by calibrating the Leland model to the 2017 tax cut. The traditional identifying assumption, constant moment partial derivative sign, is incorrect with policy optimization. The correct assumption is constant moment total derivative sign accounting for estimation-policy feedback. Model agent expectations can be updated iteratively until policy advice converges to agent expectations, with bias vanishing.

Keywords: structural models; moments; policy; bias; algorithm (search for similar items in EconPapers)
Date: 2021
References: Add references at CitEc
Citations:

Published in International Economic Review, 2021, 62 (2), pp.639-669. ⟨10.1111/iere.12513⟩

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

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:hal:journl:hal-03356704

DOI: 10.1111/iere.12513

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().