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The Empirical Foundations of Calibration

Author

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  • Lars Peter Hansen
  • James J. Heckman

Abstract

Interest in simulating recently developed dynamic stochastic general equilibrium models of the economy stimulated a demand for parameters. This has given rise to calibration as advocated by Finn E. Kydland and Edward C. Prescott (1982). This paper explores the implicit assumptions underlying their calibration method. The authors question that there is a ready supply of micro estimates available to calibrate macroeconomic models. Measures of parameter uncertainty and specification sensitivity should be routinely reported. They propose a more symbiotic role for calibration as providing signals to microeconomists about important gaps in knowledge, which when filled will solidify the empirical underpinning, improving the credibility of the quantitative output.

Suggested Citation

  • Lars Peter Hansen & James J. Heckman, 1996. "The Empirical Foundations of Calibration," Journal of Economic Perspectives, American Economic Association, vol. 10(1), pages 87-104, Winter.
    • Handle: RePEc:aea:jecper:v:10:y:1996:i:1:p:87-104
    Note: DOI: 10.1257/jep.10.1.87
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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.10.1.87
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    References listed on IDEAS

    as
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    JEL classification:

    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General

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    1. Quantitative Macroeconomics and Real Business Cycles (QM&RBC)

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