Parameter calibration DSGE

[jpfeifer]

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Model validation of Bayesian estimation

This is a rather philosophical matter. Historically, models were calibrated to long-run growth facts and then cross-validated by looking at the implies short- to medium-run implications for the business cycle, which is in a sense a different dataset. When estimating a model, the parameters are chosen by looking at the same dataset for which you try to match second moments. You could argue that this is not a rigid “out of sample” test. People nevertheless do this, because when estimating, you t…

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Calibration for less developed economies

Usually, there are three ways of setting parameters: Using micro-estimates. Doing informal moment-matching, e.g. based on the great ratios Formal estimation using either full or limited information techniques Option 2 often has the least data requirements I doubt that parameters are exactly the same for all economies, but priors differ on whether the difference between countries is the structural parameter values or the underlying structure of the economy Targeting the great ratios is…