Zhentao Shi, Jin Xi, Haitian Xie
arXiv 28 May 2025 · Econometrics
arXiv:2505.22388 · PDF · DOI · OpenAlex · Extracted main text
This paper investigates the use of synthetic control methods for causal inference in macroeconomic settings when dealing with possibly nonstationary data. While the synthetic control approach has gained popularity for estimating counterfactual outcomes, we caution researchers against assuming a common nonstationary trend factor across units for macroeconomic outcomes, as doing so may result in misleading causal estimation-a pitfall we refer to as the spurious synthetic control problem. To address this issue, we propose a synthetic business cycle framework that explicitly separates trend and cyclical components. By leveraging the treated unit's historical data to forecast its trend and using control units only for cyclical fluctuations, our divide-and-conquer strategy eliminates spurious correlations and improves the robustness of counterfactual prediction in macroeconomic applications. As empirical illustrations, we examine the cases of German reunification and the handover of Hong Kong, demonstrating the advantages of the proposed approach.
appendix boundary found by appendix_command · 74% of the source is main text. Read the extracted text to check this.
The works this paper leans on most, across its whole bibliography — not restricted to papers in our corpus. Ranked by composite intensity, which combines how often a work is mentioned, how many sections mention it, and how much of that falls in the main text rather than the appendix.
| Reference | Intensity | Mentions | Sections | Main text | |
|---|---|---|---|---|---|
| 1 | Masini, R. and M. C. Medeiros (2022) Counterfactual analysis and inference with nonstationary data | 1.000 | 7 | 3 | 100% |
| 2 | Athey, S., M. Bayati, N. Doudchenko, G. Imbens, and K. Khosravi (2021) Matrix completion methods for causal panel data models | 1.000 | 5 | 3 | 100% |
| 3 | Hsiao, C., S. H. Ching, and S. K. Wan (2012) A panel data approach for program evaluation: Measuring the benefits of political and economic integration of Hong Kong with mai… | 0.935 | 11 | 5 | 82% |
| 4 | Abadie, A., A. Diamond, and J. Hainmueller (2015) Comparative politics and the synthetic control method | 0.874 | 7 | 2 | 100% |
| 5 | Abadie, A., A. Diamond, and J. Hainmueller (2010) Synthetic control methods for comparative case studies: Estimating the effect of California’s tobacco control program | 0.794 | 12 | 5 | 50% |
| 6 | Hamilton, J. D (2018) Why you should never use the Hodrick-Prescott filter | 0.737 | 5 | 2 | 60% |
| 7 | Abadie, A. and J. Gardeazabal (2003) The economic costs of conflict: A case study of the basque country | 0.737 | 3 | 2 | 100% |
| 8 | Doudchenko, N. and G. W. Imbens (2016) Balancing, regression, difference-in-differences and synthetic control methods: A synthesis | 0.644 | 2 | 2 | 100% |
| 9 | Granger, C. W. and P. Newbold (1974) Spurious regressions in econometrics | 0.644 | 2 | 2 | 100% |
| 10 | Phillips, P. C (1986) Understanding spurious regressions in econometrics | 0.644 | 2 | 2 | 100% |
Showing the top 10 of 49 scored citations.
arXiv econ.EM papers that cite this one, ranked by how heavily they lean on it.
| Citing paper | Intensity | Mentions | Sections | |
|---|---|---|---|---|
| 1 | The Harmonic Synthetic Control Method | 0.953 | 15 | 5 |