Using Macro Counterfactuals to Assess Plausibility
An Illustration using the 2001 Rebate MPCs
Bibliographic Data
| ID | 9709838 |
|---|---|
| Authors | Jacob Orchard (0000-0002-5473-5112, Federal Reserve), Jacob D Orchard (Federal Reserve Board of Governors), Valerie A Ramey (Stanford University Hoover Institution, , National Bureau of Economic Research (NBER)), Valerie Ramey (Center for Economic and Policy Research), Johannes F Wieland (Federal Reserve Bank of San Francisco & National Bureau of Economic Research (NBER) University of California, San Diego), Johannes Wieland (Federal Reserve Bank of San Francisco) |
| Year | 2025 |
| Publication date | 2025-06-18 |
| Peer Reviewed | Yes |
| Open Access | Yes |
| Type | ARTICLE |
| Venue | The Economic Journal (JOURNAL) |
| Journal identifiers | ISSN: 0013-0133 • E-ISSN: 1468-0297 |
| Publisher | Oxford University Press (PUBLISHER • GB) |
| DOI | 10.1093/ej/ueaf039 |
| OpenAlex | W4411716752 |
| Language | EN |
| References cited | 35 |
Macroeconomics has increasingly adopted tools from the applied micro ‘credibility revolution’ to estimate micro parameters that can inform macro questions. In this paper, we argue that researchers should take advantage of this confluence of micro and macro to take the credibility revolution one step further. We argue that researchers should assess the plausibility of the micro estimates and macro models by constructing macro counterfactuals for historical periods and comparing these counterfactuals with reasonable benchmarks. We illustrate this approach by conducting a case study of the 2001 US tax rebates, as well as briefly summarising four other applications of the methodology. In the 2001 rebate case, we calibrate a two-good, two-agent New Keynesian model with the leading estimates of the household marginal propensity to consume out of the rebates to construct a counterfactual path for non-durable goods consumption. The counterfactual path implies that without the tax rebate non-durable goods consumption spending would have fallen dramatically in the late summer and fall of 2001. Using forecasting regressions and other evidence, we argue that this counterfactual is implausible. When we investigate the source of the discrepancy, we find that the leading marginal-propensity-to-consume estimates are not representative of the response of total consumption
Counterfactual conditional · Counterfactual thinking · Econometrics · Economics · Epistemology · Macro · Mathematical economics · Programming language · Computer Science · Economic Policies and Impacts · Philosophy
Consumer Spending and the Economic Stimulus Payments of 2008
Fiscal Stimulus in a Monetary Union
Credit Spreads and Business Cycle Fluctuations
Information, Animal Spirits, and the Meaning of Innovations in Consumer Confidence
Understanding the Effects of Government Spending on Consumption
Can Government Purchases Stimulate the Economy?
Household Expenditure and the Income Tax Rebates of 2001
Revisiting Event-Study Designs
Permanent Income, Current Income, and Consumption
The Intertemporal Keynesian Cross
The Credibility Revolution in Empirical Economics
Who Benefits from State and Local Economic Development Policies
Ten Years After the Financial Crisis
| Citation velocity | historical |
|---|---|
| Highly cited | No |