Title: Testing macroeconomic policies with sufficient statistics
Authors: Geert Mesters - Universitat Pompeu Fabra (Spain) [presenting]
Regis Barnichon - CREI (Spain)
Abstract: The evaluation of macroeconomic policy decisions has traditionally relied on the formulation of a specific economic model. We present a framework to assess policy decisions with minimal assumptions on the underlying structure of the economy. Given a policy maker's loss function, we propose a statistic ---the Optimal Policy Perturbation (OPP)--- to test (i) whether a policy decision is optimal, i.e., whether it minimizes the loss function, and (ii) the optimality of the policy maker's reaction function, i.e., the optimality of the systematic conduct of policy over some period of time. The computation of the OPP does not rely on specifying an underlying model, and it can be computed from interpretable sufficient statistics. We illustrate the OPP by studying US monetary policy decisions.