STATISTICAL-INFERENCE IN CALIBRATED MODELS

This paper describes a Monte Carlo procedure to assess the performance of calibrated dynamic general equilibrium models. The procedure forma lizes the choice of parameters and the evaluation of the model and pro vides an efficient way to conduct a sensitivity analysis for perturbat ions of the parameters within a reasonable range. As an illustration t he methodology is applied to two problems: the equity premium puzzle a nd how much of the variance of actual US output is explained by a real business cycle model.