The role of simulation methods in macroeconomics

Thumbnail Image
Official URL
Full text at PDC
Publication Date
Advisors (or tutors)
Journal Title
Journal ISSN
Volume Title
Instituto Complutense de Análisis Económico. Universidad Complutense de Madrid
Google Scholar
Research Projects
Organizational Units
Journal Issue
After reviewing the reasons to use solution methods in macroeconomics, this survey paper discusses diferent aspects relative to a rigorous use of the numerical output of such methods. Special attention is paid to suggestions that have been made to incorporate parameter uncertainty. Finally, the need to test for usually maintained assumptions, such as rationality of expectations, is emphasized.
Brock, W.A., and L. Mirman, 1972, “Optimal Economic Growth and Uncertainty: The Discounted Case“, Journal of Economic Theory, 479-513. Canova, F., 1994, “Statistical Inference in Calibrated Models“, Journal of Applied Econometrics, 9, S123-S144. Canova, F., 1995, ”Sensitivity Analysis and Model Evaluation in Simulated Dynamic General Equilibrium Economies”, International Economic Review, 36, 477-501. Canova, F. and G. de Nicoló, 1995, ”The Equity Premium and the Risk Free Rate: A Cross Country, Cross Maturity Examination”, CEPR working paper 1119. Canova, F. and E. Ortega, 1996, “Testing Calibrated General Equilibrium Models“, manuscript. Cassou, S., 1995, ”Optimal Tax Rules in a Dynamic Stochastic Economy with Capital”, Journal of Economic Dynamics and Control, 19, 1165-1197. Cechetti, S.G., Lam, P. and N. Mark, 1993, ”The Equity Premium and the Risk Free Rate: Matching Moments”, Journal of Monetary Economics, 31, 21-45. Cogley, T. and J.M. Nason, 1994, “Testing the Implications of Long-run Neutrality for Monetary Business Cycle Models“, Journal of Applied Econometrics, 9, S37-S170. Christiano, L.J., “Solving the Growth Model by Linear Quadratic Approximation and by Value Function Iteration“, Journal of Business and Economic Statistics. Christiano, L.J. and M. Eichenbaum, 1992, “Current Real Business Cycle Theories and Aggregate Labor Market Fluctuations“, American Economic Review, 82, 430-450. Danthine, J.P. and J.B. Donaldson, 1995 ”Non-Walrasian Economies”, in Cooley,T.F.(ed.), ”Frontiers of Business Cycle Research”, Princeton, N.J., Princeton U. Press. DeJong, D.N., B.Ingram and C.H.Whiteman, 1996, “A Bayesian Approach to Calibration“, Journal of Business and Economic Statistics, 14, 1, 1-9. Den Haan, W. and A. Marcet, 1994, ”Accuracy in Simulations”, Review of Economic Studies, 61, 3-17. Diaz-Giménez, J.,.Prescott, E.C., Fitzgerald, T. and F. Alvarez, 1992, ”Banking in Computable General Equilibrium Economies.” Journal of Economic Dynamics and Control 16: 533-559. Diaz-Giménez, J., 1997, ”Uninsured Idiosyncratic Risk, Liquidity Constraints and Aggregate Fluctuations.” Economic Theory 10: 463-82. Du¢e, D. and K. Singleton, 1993, ”SimulatedMoments Estimation ofMarkov Models of Asset Prices”, Econometrica, 61, 929-950. Eichenbaum, M., 1991, “Real Business Cycle Theory: Wisdom or Whimsy,“, Journal of Economic Dynamics and Control, 15, 607-626. Féve, P. and F. Langot, 1994, ”The RBC Models through Statistical Inference: An Application with french data”, Journal of Applied Econometrics”, 9, S11-S37. Friedman, M., 1953, “ Essays in Positive Economics”, University of Chicago Press. Garcia-Mila, T., 1987, ”Government Purchases and Real Output: an Empirical Analysis and EquilibriumModel with public Capital”, Ph.D. dissertation, manuscript, University of Minnesota. Gregory, A.W., and G.W. Smith, 1993, ”Calibration in Macroeconomics” in Maddala, G.S. (ed.) Handbook of Statistics, vol.11, Amsterdam, North Holland. Gregory, A.W., and G.W. Smith, 1994, ”Calibration as Testing: Inference in Simulated Macro Models”, Journal of Business and Economic Statistics, 9, 293-303. Hansen, L.P. and J.J. Heckman, 1996, “The Empirical Foundations of Calibration“, The Journal of Economic Perspectives, 10, 87-104. Heaton, J., and D.J. Lucas, 1996, “Evaluating the E¤ects of Incomplete Markets on Risk Sharing and Asset Pricing“, Journal of Political Economy, 104, 443-487. Imrohoroglu, A., 1992, “The Welfare Cost of In‡ation Under Imperfect Insurance“, Journal of Economic Dynamics and Control, 16, 79-91. King, R., Plosser, C., and S. Rebelo, 1988, ”Production, Growth and Business Cycles: I”, Journal of Monetary Economics, 21, 195-232. King, R., Plosser, C., and S. Rebelo, 1988, ”Production, Growth and Business Cycles: II”, Journal of Monetary Economics, 21, 309-342. Kydland, F. and E.C. Prescott, 1982, “Time to Build and Aggregate Fluctuations“, Econometrica, 50, 1345-1370. Kydland, F. and E.C. Prescott, 1991, “The Econometrics of the General Equilibrium Approach to Business Cycles“, The Scandinavian Journal of Economics, 93, 161-178. Kydland, F. and E.C. Prescott, 1996, “The Computational Experiment: An Econometric Tool“, The Journal of Economic Perspectives, 10, 69-86. Leamer, E.E., 1978, ”Speci…cation Searches: Ad-hoc inference with Nonexperimental Data”, New York: John Wiley & Sons. Lee, B.S. and B.F. Ingram, 1991, “Simulation Estimation of Time-series models”, Journal of Econometrics, 47, 197-205. Lucas, R.E., Jr., 1980, “Methods and Problems in Business Cycle Theory“, Journal of Money, Credit and Banking, 12, 696-715; also in Lucas, R. E., ed., ”Studies in Business Cycle Theory”, Cambridge, Mass.: Massachusetts Institute of Technology Press, 1981, 271-296. Lucas, R.E., Jr., 1976, “Econometric Policy Evaluation: A Critique“ in vol.1, Carnegie-Rochester Series on Public Policy, Karl Brunner and Allan Meltzer (eds.), North Holland, 19-46. Lucas, R.E., Jr. 1987, ”Models of Business Cycles”, Basil Blackwell, Oxford, U.K. Lucas, R.E., Jr. and T.J.Sargent, 1981, ”Rational Expectations and Econometric Practice”, The University of Minnesota Press, Minneapolis. Marcet, A., 1994, “Simulation Analysis of Stochastic Dynamic Models: Applications to Theory and Econometrics“, en Sims, C., ed., ”Advances in Econometrics: Sixth World Congress of the Econometric Society”, Cambridge, Cambridge University Press. Marcet, A. and K.J. Singleton, 1999, “Equilibrium Asset Prices and Savings of Heterogeneous Agents in the Presence of Incomplete Markets and Portfolio Constraints“, Macroeconomic Dynamics. Marcet, A. and G. Lorenzoni, 1999, ”The Parameterized Expectations Approach: Some Practical Issues”, in ”Computational Methods for the Study of Dynamic Economies”, (Marimón, R. and A. Scott, eds.), Oxford U. Press, U.K., 143-172. McCallum, B.T., 1989, “Real Business Cycle Models“, in Barro, Robert J., ed. Modern Business Cycle Theory, Cambridge, Mass.: Harvard University Press, 16-50. McGrattan, E., R. Rogerson and R. Wright, 1991, ”Estimating the Stochastic Growth Model with Household Production”, Federal Reserve Bank of Minneapolis. Novales, A., Domínguez, E., Pérez, J., and J. Ruiz, 1999, ”Solving Nonlinear Rational Expectations Models by Eigenvalue-eigenvector Decompositions”, in ”Computational Methods for the Study of Dynamic Economies”, (Marimón, R. and A. Scott, eds.), Oxford U. Press, U.K., 62-95. Novales, A. and J. Ruiz, 2000, ”Dynamic La¤er Curves”, manuscript, U. Complutense, Madrid. Ortega, E., 1996, “Assessing the Fit of SimulatedMultivariate DynamicModels“, manuscript, Department of Economics, European University Institute. Pagan, A., 1994, “Calibration and Econometric Research“, Journal of Applied Econometrics, 9, S1-S10. Phelps, E.S., ed., 1970, ”Microeconomic Foundations of Employment and In‡ation Theory”, New York: Norton. Poole,W., 1970, ”Optimal choice of Monetary Policy Instruments in a Simple Stochastic Macro Model”, Quarterly Journal of Economics 84, 197-216. Rios-Rull, J.V., 1992, ”Business-cycle Behavior of Life-cycle Economies with Incomplete Markets”. Cuadernos Económicos del ICE, 51, 173-196. Rios-Rull, J.V., 1994a, “Population Changes and Capital Accumulation: the Aging of the Baby Boom”, manuscript, University of Pennsylvania. Rios-Rull, J.V., 1994b, “On the Quantitative Importance of Market Completeness”, Journal of Monetary Economics, 34, 463-496. Rios-Rull,J.V., 1995, “Models with Heterogeneous Agents“ in Cooley, T.F.(ed.), ”Frontiers of Business Cycle Research, Princeton”, N.J. Princeton U. Press. Rios-Rull, J.V., 1996, “ Life Cycle Economies and Aggregate Fluctuations”, Review of Economic Studies, 63, 465-490. Sargent, T., 1979, ”Macroeconomic Theory”, New York, Academic Press. Sargent, T., 1987, ”Dynamic Macroeconomic Theory”, Harvard University Press. Sidrauski, M., 1967, ”Rational Choice and Patterns of Growth in a Monetary Economy”, American Economic Review: Papers and Proceedings 51, 534-544. Sims, C.A., 1996, Macroeconomics and Methodology”, The Journal of Economic Perspectives, 10, 105-120. Sims, C.A., 2000, ”Solving Linear Rational Expectations Models”, Journal of Computational Economics, forthcoming. Uhlig, H., 1999, ”A Toolkit for Analyzing Nonlinear Dynamic Stochastic Models Easily”, in ”Computational Methods for the Study of Dynamic Economies”, (Marimón, R. and A. Scott, eds.), Oxford U. Press, U.K., 30-62. Vallés, J., 1997, ”Aggregate Investment in a Business Cycle Model with Adjustment Costs”, Journal of Economic Dynamics and Control, 21, 7, 1181-1198. Watson, M., 1993, “Measures of Fit for Calibrated Models“ Journal of Political Economy, 1011-41. Whiteman, C., 1983, ”Linear Rational Expectations Models: a user´s guide”, U. of Minnesota Press, Minneapolis.