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The Computational Experiment: An Econometric Tool

Listed author(s):
  • 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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References listed on IDEAS
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  1. Martin Eichenbaum & Lawrence J. Christiano, 1992. "Liquidity Effects, Monetary Policy, and the Business Cycle," NBER Working Papers 4129, National Bureau of Economic Research, Inc.
  2. Hansen, Gary D., 1985. "Indivisible labor and the business cycle," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 309-327, November.
  3. Cho, J.O. & Cooley, T.F., 1991. "The Business Cycle with Nominal Contracts," RCER Working Papers 260, University of Rochester - Center for Economic Research (RCER).
  4. Kydland, Finn E & Prescott, Edward C, 1991. " The Econometrics of the General Equilibrium Approach to Business Cycles," Scandinavian Journal of Economics, Wiley Blackwell, vol. 93(2), pages 161-178.
  5. Gilbert Ghez & Gary S. Becker, 1975. "The Allocation of Time and Goods over the Life Cycle," NBER Books, National Bureau of Economic Research, Inc, number ghez75-1, September.
  6. Cooley, T.F. & Hansen, G.D., 1991. "Tax Distortions in a Neoclassical Monetary Economy," RCER Working Papers 265, University of Rochester - Center for Economic Research (RCER).
  7. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-1370, November.
  8. 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 721-754, Sept./Oct.
  9. Jess Benhabib & Richard Rogerson & Randall Wright, 1991. "Homework in macroeconomics: household production and aggregate fluctuations," Staff Report 135, Federal Reserve Bank of Minneapolis.
  10. Prescott, Edward C., 1986. "Theory ahead of business-cycle measurement," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 25(1), pages 11-44, January.
  11. Lucas, Robert E, Jr, 1980. "Methods and Problems in Business Cycle Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 12(4), pages 696-715, November.
  12. David Backus & Patrick J. Kehoe & Finn E. Kydland, 1992. "Dynamics of the Trade Balance and the Terms of Trade: The S-Curve," NBER Working Papers 4242, National Bureau of Economic Research, Inc.
  13. Bennett T. McCallum, 1988. "Real Business Cycle Models," NBER Working Papers 2480, National Bureau of Economic Research, Inc.
  14. 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.
  15. 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).
  16. Gravelle, Jane G & Kotlikoff, Laurence J, 1995. "Corporate Taxation and the Efficiency Gains of the 1986 Tax Reform Act," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 6(1), pages 51-81, June.
  17. Ayse Imrohoroglu & Edward C. Prescott, 1991. "Seigniorage as a tax: a quantitative evaluation," Staff Report 132, Federal Reserve Bank of Minneapolis.
  18. Solow, Robert M., 2000. "Growth Theory: An Exposition," OUP Catalogue, Oxford University Press, edition 2, number 9780195109030.
  19. Finn E. Kydland & Edward C. Prescott, 1989. "Hours and employment variation in business cycle theory," Discussion Paper / Institute for Empirical Macroeconomics 17, Federal Reserve Bank of Minneapolis.
  20. Allan W. Gregory & Gregor W. Smith, 1991. "Calibration in Macroeconomics," Working Papers 826, Queen's University, Department of Economics.
  21. Richard Rogerson, 2010. "Indivisible Labor, Lotteries and Equilibrium," Levine's Working Paper Archive 250, David K. Levine.
  22. 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.
  23. Chang, Ly-June, 1995. "Business cycles with distorting taxes and disaggregated capital markets," Journal of Economic Dynamics and Control, Elsevier, vol. 19(5-7), pages 985-1009.
  24. Thomas F. Cooley & Gary D. Hansen, 1987. "The Inflation Tax in a Real Business Cycle Model," UCLA Economics Working Papers 496, UCLA Department of Economics.
  25. Paul Gomme & Jeremy Greenwood, 1992. "On the cyclical allocation of risk," Discussion Paper / Institute for Empirical Macroeconomics 71, Federal Reserve Bank of Minneapolis.
  26. S. Rao Aiyagari, 1994. "On the contribution of technology shocks to business cycles," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 22-34.
  27. Robert J. Hodrick & Edward Prescott, 1981. "Post-War U.S. Business Cycles: An Empirical Investigation," Discussion Papers 451, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  28. Finn E. Kydland, 1989. "The role of money in a business cycle model," Discussion Paper / Institute for Empirical Macroeconomics 23, Federal Reserve Bank of Minneapolis.
  29. R. Mehra & E. Prescott, 2010. "The equity premium: a puzzle," Levine's Working Paper Archive 1401, David K. Levine.
  30. David K. Backus & Patrick Kehoe & Finn Kydland, 1992. "Dynamics of the Trade Balance and the Terms of Trade: The J-Curve Revisited," Working Papers 92-6, New York University, Leonard N. Stern School of Business, Department of Economics.
  31. L. Wade, 1988. "Review," Public Choice, Springer, vol. 58(1), pages 99-100, July.
  32. Christiano, Lawrence J & Eichenbaum, Martin, 1992. "Current Real-Business-Cycle Theories and Aggregate Labor-Market Fluctuations," American Economic Review, American Economic Association, vol. 82(3), pages 430-450, June.
  33. Danthine, Jean-Pierre & Donaldson, John B., 1990. "Efficiency wages and the business cycle puzzle," European Economic Review, Elsevier, vol. 34(7), pages 1275-1301, November.
  34. Rios-Rull, Jose-Victor, 1994. "On the quantitative importance of market completeness," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 463-496, December.
  35. Lucas, Robert E., 1977. "Understanding business cycles," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 5(1), pages 7-29, January.
  36. Finn E. Kydland & Edward C. Prescott, 1990. "Business cycles: real facts and a monetary myth," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 3-18.
  37. Greenwood, Jeremy & Hercowitz, Zvi & Huffman, Gregory W, 1988. "Investment, Capacity Utilization, and the Real Business Cycle," American Economic Review, American Economic Association, vol. 78(3), pages 402-417, June.
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