Consider two different randomized experiments. In experiment
Question and Solution
Consider two different randomized experiments. In experiment A, oil prices are set randomly, and the central bank reacts
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Consider two different randomized experiments. In experiment A, oil prices are set randomly, and the central bank reacts according to its usual policy rules in response to economic conditions, including changes in the oil price. In experiment B, oil prices are set randomly, and the central bank holds interest rates constant and in particular does not respond to the oil price changes. In both experiments, GDP growth is observed. Now suppose that oil prices are exogenous in the regression in Exercise 15.1. To which experiment, A or B, does the dynamic causal effect estimated in Exercise 15.1 correspond?
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