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Dynamic equilibrium economies: a framework for comparing models and data

  • Francis X. Diebold
  • Lee E. Ohanian
  • Jeremy Berkowitz

We propose a constructive, multivariate framework for assessing agreement between (generally misspecified) dynamic equilibrium models and data, which enables a complete second-order comparison of the dynamic properties of models and data. We use bootstrap algorithms to evaluate the significance of deviations between models and data, and we use goodness-of-fit criteria to produce estimators that optimize economically relevant loss functions. We provide a detailed illustrative application to modeling the U.S. cattle cycle.

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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 1997-23.

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Date of creation: 1997
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Handle: RePEc:fip:fedgfe:1997-23
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  9. Ohanian, Lee E, 1997. "The Macroeconomic Effects of War Finance in the United States: World War II and the Korean War," American Economic Review, American Economic Association, vol. 87(1), pages 23-40, March.
  10. Francis X. Diebold, 1998. "The Past, Present, and Future of Macroeconomic Forecasting," Journal of Economic Perspectives, American Economic Association, vol. 12(2), pages 175-192, Spring.
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  19. Timothy Cogley & James M. Nason, 1993. "Output dynamics in real business cycle models," Working Papers in Applied Economic Theory 93-10, Federal Reserve Bank of San Francisco.
  20. Pagan, Adrian, 1994. "Calibration and Econometric Research: An Overview: Introduction," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 9(S), pages S1-10, Suppl. De.
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  26. 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.
  27. Ericson, Richard & Pakes, Ariel, 1995. "Markov-Perfect Industry Dynamics: A Framework for Empirical Work," Review of Economic Studies, Wiley Blackwell, vol. 62(1), pages 53-82, January.
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  30. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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