Indirect inference and calibration of dynamic stochastic general equilibrium models |
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| Institution: | 1. Department of Economics, Università degli Studi dell’Insubria, Varese, Italy;2. Centre for Computational & Organisational Cognition (CORG), Department of language and communication, University of Southern Denmark, Slagelse, Denmark;3. Economics Department, Stony Brook University, Stony Brook, USA;1. Federal Reserve Bank of San Francisco 101 Market Street, Mail stop 1130, San Francisco, CA 94705, USA;2. Hoover Institution, Stanford University 434 Galvez Mall, Stanford, CA 94305, USA;2. Emory University, Atlanta, GA, United States;3. Federal Reserve Bank of Atlanta, Atlanta, GA, United States;4. BBVA Research, Madrid, Madrid, Spain;5. Fulcrum Asset Management, London, England, United Kingdom |
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| Abstract: | We advocate in this paper the use of a sequential partial indirect inference (SPII) approach, in order to account for calibration practice where dynamic stochastic general equilibrium models (DGSE) are studied only through their ability to reproduce some well-chosen moments. We stress that, despite a lack of statistical formalization, the controversial calibration methodology addresses a genuine issue on the consequences of misspecification in highly nonlinear and dynamic structural macro-models. We argue that a well-driven SPII strategy might be seen as a rigorous calibrationnist approach, that captures both the advantages of this approach (accounting for structural “a-statistical” ideas) and of the inferential approach (precise appraisal of loss functions and conditions of validity). This methodology should be useful for the empirical assessment of structural models such as those stemming from the real business cycle theory or the asset pricing literature. |
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