Monday, June 15, 2009

Update on the difficulty of building counterfactuals

An update to our previous post. Below is a chart from the blog Calculated Risk that makes clear how difficult is to judge the effectiveness of economic policies. The two blue lines show the projections made by the Obama administration on January 10th for the evolution of the unemployment rate with and without the implementation of the recover plan. The difference between the two was a measure of the expected positive effects of such a plan. The red line shows the actual behavior of unemployment, much worse than any of the two predictions. A failure of the recovery plan or the fact that things have gotten much worse than what we expected in January?

Antonio Fatás