Journal of Economic Perspectives
ISSN 0895-3309 (Print) | ISSN 1944-7965 (Online)
Identification in Macroeconomics
Journal of Economic Perspectives
(pp. 59–86)
(Complimentary)
Abstract
This paper discusses empirical approaches macroeconomists use to answer questions like: What does monetary policy do? How large are the effects of fiscal stimulus? What caused the Great Recession? Why do some countries grow faster than others? Identification of causal effects plays two roles in this process. In certain cases, progress can be made using the direct approach of identifying plausibly exogenous variation in a policy and using this variation to assess the effect of the policy. However, external validity concerns limit what can be learned in this way. Carefully identified causal effects estimates can also be used as moments in a structural moment matching exercise. We use the term "identified moments" as a short-hand for "estimates of responses to identified structural shocks," or what applied microeconomists would call "causal effects." We argue that such identified moments are often powerful diagnostic tools for distinguishing between important classes of models (and thereby learning about the effects of policy). To illustrate these notions we discuss the growing use of cross-sectional evidence in macroeconomics and consider what the best existing evidence is on the effects of monetary policy.Citation
Nakamura, Emi, and Jón Steinsson. 2018. "Identification in Macroeconomics." Journal of Economic Perspectives 32 (3): 59–86. DOI: 10.1257/jep.32.3.59Additional Materials
JEL Classification
- B41 Economic Methodology
- E00 Macroeconomics and Monetary Economics: General
- E10 General Aggregative Models: General
- E43 Interest Rates: Determination, Term Structure, and Effects
- E52 Monetary Policy
- E58 Central Banks and Their Policies