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Testing calibrated general equilibrium models

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  • Fabio Canova

    ()

  • Eva Ortega

Abstract

This paper illustrates the philosophy which forms the basis of calibration exercises in general equilibrium macroeconomic models and the details of the procedure, the advantages and the disadvantages of the approach, with particular reference to the issue of testing ``false'' economic models. We provide an overview of the most recent simulation--based approaches to the testing problem and compare them to standard econometric methods used to test the fit of non--linear dynamic general equilibrium models. We illustrate how simulation--based techniques can be used to formally evaluate the fit of a calibrated model to the data and obtain ideas on how to improve the model design using a standard problem in the international real business cycle literature, i.e. whether a model with complete financial markets and no restrictions to capital mobility is able to reproduce the second order properties of aggregate saving and aggregate investment in an open economy.

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Bibliographic Info

Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 166.

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Date of creation: Mar 1996
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Handle: RePEc:upf:upfgen:166

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Web page: http://www.econ.upf.edu/

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Keywords: Calibration; simulation; evaluation; saving and investment correlations;

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Cited by:
  1. Alexander Ludwig, 2005. "Moment estimation in Auerbach-Kotlikoff models: How well do they match the data?," MEA discussion paper series, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy 05093, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
  2. Stephen Drinkwater & Paul Levine & Emanuela Lotti & Joseph Pearlman, 2007. "The Immigration Surplus Revisited In A General Equilibrium Model With Endogenous Growth," Journal of Regional Science, Wiley Blackwell, Wiley Blackwell, vol. 47(3), pages 569-601.
  3. International Monetary Fund, 2007. "A Simple Dge Model for Inflation Targeting," IMF Working Papers 07/197, International Monetary Fund.
  4. Alfonso Novales, 2002. "The Role of Simulation Methods in Macroeconomics," Documentos de Trabajo del ICAE, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico 0227, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.
  5. Arnab Bhattacharjee & Christoph Thoenissen, 2007. "Money and Monetary Policy in DSGE Models," Money Macro and Finance (MMF) Research Group Conference 2006, Money Macro and Finance Research Group 78, Money Macro and Finance Research Group.
  6. Welz, Peter, 2006. "Assessing predetermined expectations in the standard sticky-price model: a Bayesian approach," Working Paper Series, European Central Bank 0621, European Central Bank.
  7. Bhattacharjee, Arnab & Sun, Qi & Chadha, Jagjit S., 2008. "Productivity, Preferences and UIP deviations in an Open Economy Business Cycle Model," SIRE Discussion Papers, Scottish Institute for Research in Economics (SIRE) 2008-53, Scottish Institute for Research in Economics (SIRE).
  8. Arnab Bhattacharjee & Jagjit Chadha & Qi Sun, 2010. "Productivity, Preferences and UIP Deviations in an Open Economy Business Cycle Model," Open Economies Review, Springer, Springer, vol. 21(3), pages 365-391, July.
  9. Arnab Bhattacharjee & Christoph Thoenissen, 2005. "Money and Monetary Policy in Stochastic General Equilibrium Models," CDMA Working Paper Series, Centre for Dynamic Macroeconomic Analysis 200511, Centre for Dynamic Macroeconomic Analysis, revised 15 Feb 2007.
  10. Marco Maffezzoli, 1998. "Online Appendix to Human Capital and International Real Business Cycles," Technical Appendices maffezzoli00, Review of Economic Dynamics.
  11. Paul Levine & Joseph Pearlman & Peter Welz, 2008. "Robust Inflation-Targeting Rules and the Gains from International Policy Coordination," School of Economics Discussion Papers, School of Economics, University of Surrey 0208, School of Economics, University of Surrey.
  12. Paul Levine & Emanuela Lotti & Joseph Pearlman & Richard Pierse, 2010. "Growth And Welfare Effects Of World Migration," Scottish Journal of Political Economy, Scottish Economic Society, vol. 57(5), pages 615-643, November.
  13. Matteo Manera & Bruno Sitzia, 2005. "Empirical factor demands and flexible functional forms: a bayesian approach," Economic Systems Research, Taylor & Francis Journals, Taylor & Francis Journals, vol. 17(1), pages 57-75.

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