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Making a match: combining theory and evidence in policy-oriented macroeconomic modeling. (English) Zbl 1418.62481

Summary: A persistent question in the development of models for macroeconomic policy analysis has been the relative role of economic theory and evidence in their construction. This paper looks at some popular strategies that involve setting up a theoretical or conceptual model (CM) which is transformed to match the data and then made operational for policy analysis. A dynamic general equilibrium model is constructed that is similar to standard CMs. After calibration to UK data it is used to examine the utility of formal econometric methods in assessing the match of the CM to the data and also to evaluate some standard model-building strategies.

MSC:

62P20 Applications of statistics to economics
62M10 Time series, auto-correlation, regression, etc. in statistics (GARCH)
91B84 Economic time series analysis
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