The Synthetic Control Method (SCM, Abadie et al.) & Placebo Permutation Inference constructs data-driven synthetic counterfactuals for causal policy evaluation when an intervention impacts strictly a single aggregate unit (e.g. a single country, state, or key city) where no single natural control exists; Core algorithm: finding non-negative convex weights
W∗=[w2,…,wJ+1]T (constrained by
wj≥0,∑wj=1) over a donor pool of untreated units minimizing pre-treatment predictor distance; the estimated post-treatment causal effect equals the observed trajectory minus the synthetic clone:
τ^1t=Y1t−∑j=2J+1wj∗Yjt; Statistical significance is established via Placebo Tests in space (iteratively assigning pseudo-treatments across all donor units to compute empirical RMSPE distribution ratios).