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The Empirical Foundations of Calibration
Author(s) -
Lars Peter Hansen,
James J. Heckman
Publication year - 1996
Publication title -
the journal of economic perspectives
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 9.614
H-Index - 196
eISSN - 1944-7965
pISSN - 0895-3309
DOI - 10.1257/jep.10.1.87
Subject(s) - calibration , credibility , underpinning , economics , econometrics , sensitivity (control systems) , macroeconomic model , empirical evidence , general equilibrium theory , macroeconomics , computer science , mathematical economics , mathematics , statistics , civil engineering , epistemology , political science , law , engineering , philosophy , electronic engineering
Interest in simulating recently developed dynamic stochastic general equilibrium models of the economy stimulated a demand for parameters. This has given rise to calibration as advocated by Finn E. Kydland and Edward C. Prescott (1982). This paper explores the implicit assumptions underlying their calibration method. The authors question that there is a ready supply of micro estimates available to calibrate macroeconomic models. Measures of parameter uncertainty and specification sensitivity should be routinely reported. They propose a more symbiotic role for calibration as providing signals to microeconomists about important gaps in knowledge, which when filled will solidify the empirical underpinning, improving the credibility of the quantitative output.

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