Empirical Macroeconomics

One of the main tasks for macroeconomists is to explain how macroeco-nomic aggregates such as GDP, investment, unemployment, and ination behave over time. How are these variables a¤ected by economic policy and by changes in the economic environment? A primary aspect in this analy-sis is the role of the central bank and its ability to inuence the economy. How e¤ective can monetary policy be in stabilizing unwanted uctuations in macroeconomic aggregates? How e¤ective has it been historically? Similar questions can be raised about \u85scal policy. Thomas J. Sargent and Christo-pher A. Sims have developed empirical methods that can answer these kinds of questions. This years prize recognizes these methods and their successful application to the interplay between monetary and \u85scal policy and economic activity. In any empirical economic analysis based on observational data, it is di ¢ cult to disentangle cause and e¤ect. This becomes especially cumbersome in macroeconomic policy analysis due to an important stumbling block: th