The financial encyclopedia uses cookies to improve your user experience. Find out more here!



 

 


 

Counterfactual analysis
 

 

In econometrics this refers to an exercise in policy evaluation. In macroeconomics it typically involves time series data. Ex post counterfactual analysis compares the realized outcome with the one that would have obtained under a different policy; for example, ‘What would be the state of the UK economy in 2009 had it adopted euro in 1999?’ Ex ante counterfactual analysis compares predicted outcomes under alternative policies and is used to help make policy decisions; for example, ‘What will be the state in 2020?’ In microeconomics counterfactual analysis is typically applied to cross-sectional data; the effect of an intervention is evaluated by comparing the outcomes for two sub-samples, the treatment group, which was subjected to the interventioi and the control group, which was not.

 

Reference: Oxford Press Dictonary of Economics, 5th edt.