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The computational experiment: an econometric tool

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  • Finn E. Kydland
  • Edward C. Prescott

Abstract

An economic experiment consists of the act of placing people in an environment desired by the experimenter, who then records the time paths of their economic behavior. Performing experiments that use actual people at the level of national economies is obviously not practical, but constructing a model economy and computing the economic behavior of the model?s people is. We refer to such experiments as computational experiments because the economic behavior of the model?s people is computed. In this essay, we specify the steps in designing a computational experiment to address some well posed quantitative question. We emphasize that the computational experiment is an econometric tool used in the task of deriving the quantitative implications of theory.

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  • Finn E. Kydland & Edward C. Prescott, . "The computational experiment: an econometric tool," Staff Report, Federal Reserve Bank of Minneapolis.
    • Handle: RePEc:fip:fedmsr:178
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    References listed on IDEAS

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    2. Altig, David E & Carlstrom, Charles T & Lansing, Kevin J, 1995. "Computable General Equilibrium Models and Monetary Policy Advice," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 1472-1493, November.
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    4. Rodrigo Garcá-Verdú, 2005. "Factor Shares from Household Survey Data," DEGIT Conference Papers c010_057, DEGIT, Dynamics, Economic Growth, and International Trade.
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