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The Computational Experiment: An Econometric Tool

  • Finn E. Kydland
  • Edward C. Prescott

An economic experiment places people in an environment desired by the experimenter, who then records the time paths of their economic behavior. Performing experiments using actual people at the level of national economies is obviously impractical but constructing a model economy and computing the economic behavior of the model's people is. Such experiments are termed 'computational' because economic behavior of the model's people is computed. This essay specifies the steps in designing a computational experiment to address some well-posed quantitative question. The computational experiment is an econometric tool used in the task of deriving the quantitative implications of theory.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.10.1.69
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Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 10 (1996)
Issue (Month): 1 (Winter)
Pages: 69-85

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Handle: RePEc:aea:jecper:v:10:y:1996:i:1:p:69-85
Note: DOI: 10.1257/jep.10.1.69
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  1. Greenwood, J. & Hercowitz, Z., 1991. "The Allocation of Capital and Time Over the Business Cycle," RCER Working Papers 268, University of Rochester - Center for Economic Research (RCER).
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  12. Edward C. Prescott, 1986. "Theory ahead of business cycle measurement," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 9-22.
  13. Finn E. Kydland & Edward C. Prescott, 1990. "The econometrics of the general equilibrium approach to business cycles," Staff Report 130, Federal Reserve Bank of Minneapolis.
  14. Cooley, Thomas F & Hansen, Gary D, 1989. "The Inflation Tax in a Real Business Cycle Model," American Economic Review, American Economic Association, vol. 79(4), pages 733-48, September.
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  17. Ayse Imrohoroglu & Edward Prescott, 1991. "Seigniorage as a tax: a quantitative evaluation," Proceedings, Federal Reserve Bank of Cleveland, pages 462-482.
  18. Solow, Robert M., 2000. "Growth Theory: An Exposition," OUP Catalogue, Oxford University Press, edition 2, number 9780195109030, March.
  19. Imrohoroglu, Ayse, 1992. "The welfare cost of inflation under imperfect insurance," Journal of Economic Dynamics and Control, Elsevier, vol. 16(1), pages 79-91, January.
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  23. Robert E. Lucas Jr. & Nancy L. Stokey, 1984. "Money and Interest in Cash-In-Advance Economy," Discussion Papers 628, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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  27. Lucas, Robert E, Jr & Rapping, Leonard A, 1969. "Real Wages, Employment, and Inflation," Journal of Political Economy, University of Chicago Press, vol. 77(5), pages 721-54, Sept./Oct.
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