Chapter 14The Empirical Foundations of Calibration

Journal of Economic Perspectives 10(1), Winter 1996, pp. 87-104

Lars Peter Hansen and James J. Heckman

General equilibrium theory provides the intellectual underpinnings for modern macroeconomics, finance, urban economics, public finance and numerous other fields. However, as a paradigm for organizing and synthesizing economic data, it poses some arduous challenges. A widely accepted empirical counterpart to general equilibrium theory remains to be developed. There are few testable implications of general equilibrium theory for a time series of aggregate quantities and prices. There are a variety of ways to formalize this claim. Sonnenschein (1973) and Mantel (1974) show that excess aggregate ...

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