A Sufficient Statistics Approach for Macro Policy
Régis Barnichon, Geert Mesters
American Economic Review · 2023 · Volume 113 · Issue 11
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.
Keywords
Employment, Unemployment, Wages, Intergenerational Income Distribution, Aggregate Human Capital, Aggregate Labor Productivity, Price Level, Inflation, Deflation, Business Fluctuations, Cycles, Interest Rates: Determination, Term Structure, and Effects, Monetary Policy, Central Banks and Their Policies
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