A Sufficient Statistics Approach for Macro Policy
American Economic Review
vol. 113,
no. 11, November 2023
(pp. 2809-45)
Abstract
The evaluation of macroeconomic policy decisions has traditionally relied on the formulation of a specific economic model. In this work, we show that two statistics are sufficient to detect, often even correct, nonoptimal policies, i.e., policies that do not minimize the loss function. The two sufficient statistics are (i) forecasts for the policy objectives conditional on the policy choice and (ii) the impulse responses of the policy objectives to policy shocks. Both statistics can be estimated without relying on a specific structural economic model. We illustrate the method by studying US monetary policy decisions.Citation
Barnichon, Régis, and Geert Mesters. 2023. "A Sufficient Statistics Approach for Macro Policy." American Economic Review, 113 (11): 2809-45. DOI: 10.1257/aer.20220581Additional Materials
JEL Classification
- E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
- E31 Price Level; Inflation; Deflation
- E32 Business Fluctuations; Cycles
- E43 Interest Rates: Determination, Term Structure, and Effects
- E52 Monetary Policy
- E58 Central Banks and Their Policies