Real Business Cycles: A Reader

By James E. Hartley; Kevin D. Hoover et al. | Go to book overview

CHAPTER 15

Oxford Economic Papers 47 (1995), 24-44

FACTS AND ARTIFACTS: CALIBRATION AND THE EMPIRICAL ASSESSMENT OF REAL-BUSINESS-CYCLE MODELS

By KEVIN D. HOOVER

Department of Economics, University of California, Davis, California 95616-8578, USA


1. Whither quantitative macroeconomics?

THE RELATIONSHIP between theory and data has been, from the beginning, a central concern of the new-classical macroeconomics. This much is evident in the title of Robert E. Lucas’s and Thomas J. Sargent’s landmark edited volume, Rational Expectations and Econometric Practice (1981). With the advent of real-business-cycle models, many new classical economists have turned to calibration methods. The new classical macroeconomics is now divided between calibrators and estimators. But the debate is not a parochial one, raising, as it does, issues about the relationships of models to reality and the nature of econometrics that should be important to every school of macroeconomic thought, indeed to all applied economics. The stake in this debate is the future direction of quantitative macroeconomics. It is, therefore, critical to understand the root issues.

Lucas begins the second chapter of his Models of Business Cycles with the remark:

Discussions of economic policy, if they are to be productive in any practical sense, necessarily involve quantitative assessments of the way proposed policies are likely to affect resource allocation and individual welfare. (Lucas 1987, p. 6; emphasis added)

This might appear to be a clarion call for econometric estimation. But appearances are deceiving. After mentioning Sumru Altug’s (1989) estimation and rejection of the validity of a variant of Finn E. Kydland and Edward C. Prescott’s (1982) real-business-cycle model (a model which takes up a large portion of his book), Lucas writes:

…the interesting question is surely not whether [the real-business-cycle model] can be accepted as ‘true’ when nested within some broader class of models. Of course the model is not ‘true’: this much is evident from the axioms on which it is constructed. We know from the onset in an enterprise like this (I would say, in any effort in positive economics) that what will emerge—at best—is a workable approximation that is useful in answering a limited set of questions. (Lucas 1987, p. 45)

Lucas abandons not only truth but also the hitherto accepted standards of empirical economics. Models that clearly do not fit the data, he argues, may nonetheless be calibrated to provide useful quantitative guides to policy.

Calibration techniques are commonly applied to so-called ‘computable general-equilibrium’ models. They were imported into macroeconomics as a

© Oxford University Press 1995

-272-

Notes for this page

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this book

This book has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this book

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this page

Cited page

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited page

Bookmark this page
Real Business Cycles: A Reader
Table of contents

Table of contents

  • Title Page iii
  • Contents vii
  • Acknowledgements xi
  • Part I - Introduction 1
  • Chapter 1 - The Limits of Business Cycle Research 3
  • Notes 34
  • Chapter 2 - A User's Guide to Solving Real Business Cycle Models 43
  • Part II - The Foundations of Real Business Cycle Modeling 55
  • Chapter 3 57
  • Chapter 4 83
  • References 96
  • Chapter 5 97
  • Chapter 6 102
  • Chapter 7 108
  • Part III - Some Extensions 147
  • Chapter 8 149
  • Chapter 9 168
  • References 178
  • Chapter 10 - Current Real-Business-Cycle Theories and Aggregate Labor-Market Fluctuations 179
  • Chapter 11 - The Inflation Tax in a Real Business Cycle Model 200
  • Part IV - The Methodology of Equilibrium Business Cycle Models 217
  • Chapter 12 219
  • Chapter 13 237
  • Chapter 14 254
  • Chapter 15 272
  • Part V - The Critique of Calibration Methods 293
  • Chapter 16 295
  • Chapter 17 - Measures of Fit for Calibrated Models 302
  • Chapter 18 333
  • Chapter 19 355
  • Part VI - Testing the Real Business Cycle Model 381
  • Chapter 20 - Business Cycles: Real Facts and a Monetary Myth 383
  • References 398
  • Chapter 21 399
  • Chapter 22 - Evaluating a Real Business Cycle Model 431
  • Chapter 23 462
  • Chapter 24 496
  • Chapter 25 513
  • Chapter 26 - Did Technology Shocks Cause the 1990-1991 Recession? 533
  • Part VII - The Solow Residual 541
  • Chapter 27 - Technical Change and the Aggregate Production Function 543
  • Chapter 28 552
  • Chapter 29 564
  • Chapter 30 - Output Dynamics in Real-Business-Cycle Models 571
  • Part VIII - Filtering and Detrending 591
  • Chapter 31 - Postwar U. S. Business Cycles: an Empirical Investigation 593
  • Chapter 32 609
  • Chapter 33 626
  • Index 652
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this book

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
/ 672

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.