Theory, Measurement, and Calibration of Macroeconomic Models
Calibration has become a standard tool of macroeconomics. This paper extends and refines the calibration methodology along several important dimensions. First, accounting for home production is important both in measuring calibration targets and in organizing the data in a model-consistent fashion. For this reason, thinking about home production is important even if the model under consideration does not include home production. Second, investment-specific technological change is included because of its strong balanced growth parameter restrictions. Third, the measurement strategy is laid out as transparently as possible so that others can easily replicate the underlying calculations. The data and calculations used in this paper are available on the web.
JEL Codes: E13, E32, E20, and O30
Keywords: calibration, capital stock, business cycles, investment
Suggested citation: Gomme, Paul, and Peter C. Rupert, 2005. "Theory, Measurement, and Calibration of Macroeconomic Models," Federal Reserve Bank of Cleveland, Working Paper no. 05-05.