Identification in Macroeconomics

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My proposed thesis focuses on estimating the causal effects ofmacroeconomic policies, particularly monetary policy. This question is centralto the study of modern dynamic macroeconomics and has direct relevance forpolicy making. The literature to-date has been heavily influenced by aparticular conceptual framework, under which the notion of a "causal effect" isexplicitly defined in terms of the effect of a "shock" - that is, an unanticipated,autonomous change linked to some specific source. My thesis would seek tochallenge this conceptual framework, taking inspiration instead fromframeworks typically used in other areas of economics and social scienceswhere causality is defined in terms of counterfactuals. I plan to do this througha combination of statistical theory to prove the deficiencies in the"shock-based" conception of causality, as well as through various effectiveempirical applications highlighting the insights that can be gained throughconceiving of causality as counterfactuals.My research work to-date has already sought to do just that. In particular, aspart of an ongoing project, I have developed a number of proofs to highlight theproblems associated with a specific application of the "shock-based" approachin which one attempts to estimate the causal effect of policy by controlling forconfounding factors that simultaneously drive policy decisions and outcomevariables of interest. I plan to build on this work for the DPhil.First, I plan to develop similar proofs to highlight that similar issues arise withthe "shock-based" approach in other settings (i.e. other than ones in whichpractitioners attempt to control for confounding factors). Second, I plan todemonstrate insights that can be garnered through alternate approachesthrough applied work with a focus on estimating the effect of monetary policy (adefining challenge in the literature to-date). For example, I hope to revisitestimates of the extent to which central banks influence the macroeconomythrough their policy decisions by implicitly revealing their own forecasts. Myhypothesis is that the literature over-states this "information channel" due to afundamental issue of "selection bias" - for example, central bankcommunications that the economic outlook is worsening tend to be associatedwith bad economic outcomes simply because the central bank has the ability toeffectively predict future recessions rather than due to any causal relationshipbetween their communications and the macroeconomy. This has significantimplications for the conduct of monetary policy, especially around recessions