A flexible Synthetic Control Method for modeling policy evaluation

We extend the Synthetic Control Method (SCM) of Abadie et al. (2010) for policy evaluation through a flexible nonparametric construction of the weights for estimating the synthetic (or counterfactual) time pattern of a treated unit. We present a comparison of both methods to assess the effects of adopting the Euro as national currency on Italian exports. Results show that both methods provide a small pre-treatment prediction error. However, when departing from the beginning of the pre-treatment period, the nonparametric SCM slightly outperforms the parametric one.