Real Business Cycles

Chapter 19Sensitivity Analysis and Model Evaluation in Simulated Dynamic General Equilibrium Economies^*

International Economic Review 36(2), May 1995, pp. 477–501

By FABIO CANOVA¹

    This paper describes a Monte Carlo procedure to evaluate dynamic nonlinear general equilibrium macro models. The procedure makes the choice of parameters and the evaluation of the model less subjective than standard calibration techniques, it provides more general restrictions than estimation by simulation approaches and provides a way to conduct global sensitivity analysis for reasonable perturbations of the parameters. As an illustration the technique is applied to three examples involving different models and statistics.

1. Introduction

A growing body of research ...