Using Panel Data for Macroeconomic Policy Evaluation: A Survey

Year 2019, Volume: 19 Issue: 4, 389 - 399, 26.10.2019

Ron Smith

https://doi.org/10.21121/eab.638571

Abstract

In order to measure the macroeconomic effect of some policy or event, a “treatment”, we need to construct a
“counterfactual”, a prediction of what would have happened in the absence of treatment, which is unobserved. Panel
data for countries and regions, where the number of units and time periods are large, potentially provide untreated
control groups which can be used to construct the counterfactual. A number of different procedures have been
suggested for such policy evaluations, including the synthetic control method, SCM, and the panel data approach,
PDA. We survey these and other methods.

Keywords

: panel data, counterfactuals, policy evaluation, synthetic controls, macroeconomics

References

• Abadie, A. & M. D Cattaneo (2018). Econometric methods for program evaluation. Annual Review of Economics, 10, 465-503.
• Abadie, A., A. Diamond, & J. Hainmueller (2010) Synthetic Control Methods for Comparative Case Studies: Estimating the Effect of California’s Tobacco Control Program, Journal of the American Statistical Association,105(490) 493--505.
• Abadie, A., A. Diamond, & J. Hainmueller (2015) Com- parative politics and the synthetic control method,
• American Journal of Political Science, 59(2), 495-510. Abadie, A. & J. Gardeazabal, Javier (2003) The Economic
• Costs of Conflict: A Case Study of the Basque Coun- try, American Economic Review, 93(1) 113-132.
• Akhmadieva, V & R. P. Smith (2019) The macroeconomic impact of the euro, BCAM Working Paper 1903. Birk- beck, University of London, London, UK, forthcom- ing in Scientific Annals of Economics and Business.
• Angrist, J. D., O. Jorda & G. Kuersteiner (2018): Semipar- ametric estimates of monetary policy effects: string theory revisited, Journal of Business & Economic Statistics, 36:3, 371-387,
• Bai, J. (2009) Panel Data models with interactive fixed effects, Econometrica, 77(4) 1229-1279.
• Bove, V, L. Elia and R.P. Smith (2017) On the heterog- enous consequences of civil war Oxford Economic Papers, 69(3) 550-568.
• Chan, M.K. & S. Kwok (2016) Policy Evaluation with Interactive Fixed Effects. University of Sydney Eco- nomics Working paper 2016-11.
• Chudik, A & M.H. Pesaran (2016) Theory and Practice of GVAR Modeling, Journal of Economic Surveys, 30(1) 165-197.
• Gardeazabal, J., Vega-Bayo, A., (2016). An empirical comparison between the synthetic control method and Hsiao et al.’s panel data approach to program evaluation. Journal of Applied Econometrics, 32 (5), 983--1002.
• Geng, H & Q. Zhou (2018) Estimation and inference of treatment effects using a new panel data approach with application to the impact of US SYG Law on state level murder rate,
• Gobillon, L. & T. Magnac (2016) Regional Policy Eval- uation: Interactive Fixed Effects and Synthetic Controls, Review of Economics and Statistics, 98(3) 535-551.
• Hsiao, C., H.S. Ching, and K. W. Shui (2012), A panel data approach for program evaluation: measuring the benefits of political and economic integration of Hong kong with mainland China, Journal of Applied Econometrics, 27(5) p705--740.
• Hsiao, C & Q. Zhou (2019) Panel parameteric, semipara- metric and nonparametric construction of counter- factuals, Journal of Applied Econometrics
• Li, K., & Bell, D. (2017). Estimation of average treatment effects with panel data: Asymptotic theory and im- plementation. Journal of Econometrics, 197, 65--75.
• Jorda O. & A.M.Taylor (2016) The time for austerity: esti- mating the average treatment effect of fiscal policy.
• Economic Journal, 126(1) 219-255. Pesaran, M.H. (2006) Estimation and Inference in Large Heterogeneous Panels with a multifactor error structure, Econometrica, 74(4) 967-1012.
• Pesaran, M.H., L.V Smith and R.P. Smith (2007) What if the UK or Sweden had joined the Euro in 1999? An empirical evaluation using a Global VAR. Interna- tional Journal of Finance and Economics, 12, 55-87.
• Pesaran, M.H., and R.P. Smith (2016) Counterfactual analysis in macroeconometrics: an empirical in- vestigation into the effects of quantitative easing, Research in Economics, 70(2), 262-280.
• Pesaran M.H. & Smith R.P. (2018) Tests of policy interven- tions in DSGE models, Oxford Bulletin of Economics and Statistics, 80(3), 457-484.
• Terzi, A. (2019) The Euro Crisis and Economic Growth:A Novel Counterfactual Approach, CESifo working paper, 7746.
• Wan, S-K, Y Xie, C. Hsiao (2018) Panel data approach vs synthetic control method, Economics Letters 164, 121-123..
• Xu, Y. (2017). Generalized synthetic control method: Causal inference with interactive fixed effects mod- el. Political Analysis, 25(1), 57--76.