Dynamic Equilibrium Economies: A Framework for Comparing Models and Data

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 p rovide a detailed illustrative application to modelling the U.S. cattle cycle.