Computational Experiments and Reality
AbstractA common practice in macroeconomics is to assess the validity of general equilibrium models by first deriving their implications for population moments and then comparing population moments with observed sample moments. Generally the population moments are not explicit functions of model parameters, and so computational experiments are used to establish the link between parameters and moments. In most cases the general equilibrium models are intended to describe certain population moments (for example, means) but not others (for example, variances). The comparison of population moments with observed sample moments is informal, a process that has been termed calibration by some economists and ocular econometrics by others. This paper provides a formal probability framework within which this approach to inference can be studied. There are two principle results. First, if general equilibrium models are taken as predictive for sample moments, then the formal econometrics of model evaluation and comparison are straightforward. The fact that the models describe only a subset of moments presents no obstacles, and the formal econometrics yield as a byproduct substantial insights into the workings of models. Second, if general equilibrium models are taken to establish implications for population moments but not sample moments, then there is no link to reality because population moments are unobserved. Under this assumption, atheoretical macroeconomic models that link population and sample moments can be introduced coherently into the formal econometrics of model evaluation and comparison. The result is a framework that unifies general equilibrium models (theory without measurement) and atheoretical econometrics (measurement without theory). The paper illustrates these using some models of the equity premium.
Download InfoTo our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
Bibliographic InfoPaper provided by Society for Computational Economics in its series Computing in Economics and Finance 1999 with number 401.
Date of creation: 19 Mar 1999
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-1999-07-19 (All new papers)
- NEP-DGE-1999-07-19 (Dynamic General Equilibrium)
- NEP-ECM-1999-07-19 (Econometrics)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum).
If references are entirely missing, you can add them using this form.