Chapter 17Measures of Fit for Calibrated Models
Journal of Political Economy 101(6), December 1993, pp. 1011-1041
Northwestern University and Federal Reserve Bank of Chicago
This paper suggests a new procedure for evaluating the fit of a dynamic structural economic model. The procedure begins by augmenting the variables in the model with just enough stochastic error so that the model can exactly match the second moments of the actual data. Measures of fit for the model can then be constructed on the basis of the size of this error. The procedure is applied to a standard real business cycle model. Over the business cycle frequencies, the model must be augmented with a substantial error to match data for the postwar U.S. economy. ...
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