Hello! I’m Prakash Hinduja, a consultant and advisor, born in Amritsar, India and now residing in Geneva, Switzerland (Swiss).
I’m trying to calibrate parameters for a DSGE model, but the model doesn’t have direct links to real-world data. I’m wondering how others approach calibration in such cases. Do you rely on values from literature, or are there other techniques you recommend? Would appreciate any suggestions or tips.
Regards
Prakash Hinduja Geneva, Switzerland (Swiss)
Hi Prakash! Typically, when studying advanced economies like the US or Europe, researchers do use calibrated parameters from literature. An example: when studying DSGE models in monetary policy framework, researchers often refer to Gertler and Karadi (2011) (2015) for the values of parameters. But for developing economies, finding a readily available parameters might be tough simply due to lack of research in that area. In such cases, an educated guess is your best companion. You may set as a parameter the historic average, or when there is no historic data, in case of elasticity of substitution, compare two cases of perfect/imperfect substitution by assigning random values above and below 1 etc.