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@article{Chemla:2021:10.1111/iere.12513,
author = {Chemla, G and Hennessy, C},
doi = {10.1111/iere.12513},
journal = {International Economic Review},
pages = {639--669},
title = {Equilibrium counterfactuals},
url = {http://dx.doi.org/10.1111/iere.12513},
volume = {62},
year = {2021}
}

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TY  - JOUR
AB  - We incorporate structural modellers 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  modellers.   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.
AU  - Chemla,G
AU  - Hennessy,C
DO  - 10.1111/iere.12513
EP  - 669
PY  - 2021///
SN  - 0020-6598
SP  - 639
TI  - Equilibrium counterfactuals
T2  - International Economic Review
UR  - http://dx.doi.org/10.1111/iere.12513
UR  - https://onlinelibrary.wiley.com/doi/10.1111/iere.12513
UR  - http://hdl.handle.net/10044/1/87279
VL  - 62
ER  -

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