Causality and Econometrics

of the of IZA. on policy, but IZA takes no institutional policy positions. The IZA research network is committed to the IZA Guiding Principles of Research Integrity. of Our key between policymakers ABSTRACT This paper examines the econometric causal model for policy analysis developed by the seminal ideas of Ragnar Frisch and Trygve Haavelmo. We compare the econometric causal model with two popular causal frameworks: Neyman-Holland causal model and the do-calculus. The Neyman-Holland causal model is based on the language of potential outcomes and was largely developed by statisticians. The do-calculus, developed by Judea Pearl and co-authors, relies on Directed Acyclic Graphs (DAGs) and is a popular causal framework in computer science. We make the case that economists who uncritically use these approximating frameworks often discard the substantial benefits of the econometric causal model to the detriment of more informative economic policy analyses. We illustrate the versatility and capabilities of the econometric framework using causal models that are frequently studied by economists.