The Computational Experiment: an Econometric Tool
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. Such experiments are termed computational. This essay specifies the steps in designing a computational experiment to address some well-posed quantitative question. The authors emphasize that the computational experiment is an econometric tool used in the task of deriving the quantitative implications of theory.
Suggested citation: Kydland, Finn, and Edward Prescott, 1994. “The Computational Experiment: an Econometric Tool,” Federal Reserve Bank of Cleveland, Working Paper no. 94-20.