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The computational experiment: an econometric tool

  • Finn E. Kydland
  • Edward C. Prescott

An economic experiment consists of the act of placing people in an environment desired by the experimenter, who then records the time paths of their economic behavior. Performing experiments that use actual people at the level of national economies is obviously not practical, but constructing a model economy and computing the economic behavior of the model’s people is. We refer to such experiments as computational experiments because the economic behavior of the model’s people is computed. In this essay, we specify the steps in designing a computational experiment to address some well posed quantitative question. We emphasize that the computational experiment is an econometric tool used in the task of deriving the quantitative implications of theory.

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Paper provided by Federal Reserve Bank of Minneapolis in its series Staff Report with number 178.

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Date of creation: 1994
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Publication status: Published in Journal of Economic Perspectives (Vol. 10, n. 1, Winter 1996, pp.69-85)
Handle: RePEc:fip:fedmsr:178
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