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| Autor principal: | |
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| Formato: | Preprint |
| Publicado: |
2025
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| Materias: | |
| Acceso en línea: | https://arxiv.org/abs/2510.23762 |
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| _version_ | 1866912673628684288 |
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| author | Pala, Raimondo |
| author_facet | Pala, Raimondo |
| contents | This paper addresses the challenges of giving a causal interpretation to vector autoregressions (VARs). I show that under independence assumptions VARs can identify average treatment effects, average causal responses, or a mix of the two, depending on the distribution of the policy. But what about situations in which the economist cannot rely on independence assumptions? I propose an alternative method, defined as control-VAR, which uses control variables to estimate causal effects. Control-VAR can estimate average treatment effects on the treated for dummy policies or average causal responses over time for continuous policies.
The advantages of control-based approaches are demonstrated by examining the impact of natural disasters on the US economy, using Germany as a control. Contrary to previous literature, the results indicate that natural disasters have a negative economic impact without any cyclical positive effect. These findings suggest that control-VARs provide a viable alternative to strict independence assumptions, offering more credible causal estimates and significant implications for policy design in response to natural disasters. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2510_23762 |
| institution | arXiv |
| publishDate | 2025 |
| record_format | arxiv |
| spellingShingle | Control VAR: a counterfactual based approach to inference in macroeconomics Pala, Raimondo Econometrics This paper addresses the challenges of giving a causal interpretation to vector autoregressions (VARs). I show that under independence assumptions VARs can identify average treatment effects, average causal responses, or a mix of the two, depending on the distribution of the policy. But what about situations in which the economist cannot rely on independence assumptions? I propose an alternative method, defined as control-VAR, which uses control variables to estimate causal effects. Control-VAR can estimate average treatment effects on the treated for dummy policies or average causal responses over time for continuous policies. The advantages of control-based approaches are demonstrated by examining the impact of natural disasters on the US economy, using Germany as a control. Contrary to previous literature, the results indicate that natural disasters have a negative economic impact without any cyclical positive effect. These findings suggest that control-VARs provide a viable alternative to strict independence assumptions, offering more credible causal estimates and significant implications for policy design in response to natural disasters. |
| title | Control VAR: a counterfactual based approach to inference in macroeconomics |
| topic | Econometrics |
| url | https://arxiv.org/abs/2510.23762 |