Dynamic Equilibrium Economies: A Framework for Comparing Models and Data

Abstract

We propose a constructive, multivariate framework for assessing agreement between (generally misspecified) dynamic equilibrium models and data, a framework which enables a complete second-order comparison of the dynamic properties of models and data. We use bootstrap algorithms to evaluate the significance of deviations between models and data, and we use goodness-of-fit criteria to produce estimators that optimize economically relevant loss functions. We provide a detailed illustrative application to modeling the U.S. cattle cycle.

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