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Measures of fit for calibrated models

  • Mark W. Watson

This paper suggests a new procedure for evaluating the fit of a dynamic structural economic model. The procedure begins by augmenting the variables in the model with just enough stochastic error so that the model can exactly match the second moments of the actual data. Measures of fit for the model can then be constructed on the basis of the size of this error. The procedure is applied to a standard real business cycle model. Over the business cycle frequencies, the model must be augmented with a substantial error to match data for the postwar U.S. economy. Copyright 1993 by University of Chicago Press.

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Paper provided by Federal Reserve Bank of Chicago in its series Working Paper Series, Macroeconomic Issues with number 91-9.

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Date of creation: 1991
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Handle: RePEc:fip:fedhma:91-9
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