ESTIMATING PARAMETERS OF REAL BUSINESS-CYCLE MODELS

The calibration technique is the most common procedure to match the da ta generated from an equilibrium business cycle model with actual macr oeconomic time series. This paper goes a step further and tests and ap plies a maximum likelihood procedure, in combination with the simulate d annealing, to estimate the parameters of a baseline RBC model from U .S. macroeconomic time series data. The procedure is tested on a simul ated data set where the parameters are known and then applied to U.S. time series data. This permits us to evaluate the efficiency of the pr ocedure and the extent to which the RBC model is a good representation of macroeconomic data.