A test of a dynamic, macroeconomic model with free parameters is provided by comparing its features, such as moments, with those of historical data. We provide a method for studying the distribution of the sample moment under the null hypothesis that the model is true. We calculate the size of...

A well-known feature of one-good, multi-agent, Arrow-Debreu economies with identical additively-separable, homothetic preferences is that the consumptions of all agents are perfectly correlated. Such economies are widely used in interpreting business cycles but seem to be inconsistent with...

This chapter reviews calibration techniques in macroeconomics. The discussion designs with an outline of the use of calibration in applied work. Next, a simple asset-pricing model is the setting for a demonstration of calibration and for comparison with conventional estimation and testing....

Business cycles may be defined or measured by parametrizing detrending filters to maximize the ability of a business-cycle model to match the moments of the remaining cycles. Thus a theory can be used to guide cycle measurement. We present two applications to U.S. postwar data. In the first...

One aspect of calibration in macroeconomics is the notion that free parameters of models should be chosen by matching certain moments of the simulated models with those of actual data. We formally examine this notion by treating the process of calibration as an econometric estimator. A numerical...

We examine the behavior of forward and spot exchange rates from the perspective of the representative agent theory of asset pricing. We verify that with moderate risk aversion and time-additive preferences the theory accounts for very little (by our calculations, less than 5 percent) of the...

We review the recent research on time-varying risk premiums, including attempts to explain rejection by Baillie and others of "the unbiasedness hypothesis." Using spot and forward foreign exchange rates we discuss the evidence for time-varying risk premiums, relate it to general equilibrium...

This paper investigates the functional form of money demand in Canada using the Box-Cox transformation. This framework permits the testing of the partial adjustment process within the specification of the demand function. While the partial adjustment process is acceptable to the data, the...

This paper analyses the effects of inflation on ex-post real interest rates in an international framework. A dynamic factor model is estimated in which real interest rates are influenced by real interest and inflation factors that are common to all the countries, and by country- specific...