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The computational experiment: an econometric tool

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  • Finn E. Kydland
  • Edward C. Prescott

Abstract

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.

Suggested Citation

  • Finn E. Kydland & Edward C. Prescott, 1994. "The computational experiment: an econometric tool," Staff Report 178, Federal Reserve Bank of Minneapolis.
  • Handle: RePEc:fip:fedmsr:178
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    References listed on IDEAS

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    Keywords

    Econometrics;

    JEL classification:

    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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