Table of Contents

Handbook of Research Methods and Applications in Empirical Macroeconomics

Handbook of Research Methods and Applications in Empirical Macroeconomics

Handbooks of Research Methods and Applications series

Edited by Nigar Hashimzade and Michael A. Thornton

This comprehensive Handbook presents the current state of art in the theory and methodology of macroeconomic data analysis. It is intended as a reference for graduate students and researchers interested in exploring new methodologies, but can also be employed as a graduate text. The Handbook concentrates on the most important issues, models and techniques for research in macroeconomics, and highlights the core methodologies and their empirical application in an accessible manner. Each chapter is largely self-contained, whilst the comprehensive introduction provides an overview of the key statistical concepts and methods. All of the chapters include the essential references for each topic and provide a sound guide for further reading.

Chapter 24: Calibration and simulation of DSGE models

Paul Gomme and Damba Lkhagvasuren

Subjects: economics and finance, econometrics, research methods, research methods in economics

Extract

Many interesting macroeconomic models are either sufficiently complex that they must be solved computationally, or the questions being asked are inherently quantitative and so they should be solved computationally. The first group includes almost any empirically relevant version of the neoclassical growth model. The second group includes such basic questions as business cycle fluctuations: How well does the neoclassical growth model do in producing variation in macroaggregates (like output, consumption, investment and hours worked) that ‘look like’ those seen in the data. These are quantitative questions for which qualitative answers are insufficient. Calibration is an effective tool for imposing discipline on the choice of parameter values that arise in such models, taking what would otherwise be a numerical example into the realm of an empirically relevant exercise with parameters tightly pinned down by either long- run growth facts, or microeconomic observations. As such, calibration is a useful part of the macroeconomist’s toolkit. This chapter is concerned with measurement as it pertains to calibration. Kydland and Prescott (1982) provided the foundations for the calibration procedure; key subsequent developments have been made by Prescott (1986), Cooley and Prescott (1995) and Gomme and Rupert (2007). This chapter builds chiefly on Gomme and Rupert. Like this earlier paper, our goal is to provide a sufficiently careful and detailed description of our procedures for others to be easily able to replicate our work.

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