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Working Paper

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.

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.

Suggested Citation

Kydland, Finn, and Edward C. Prescott. 1994. “The Computational Experiment: an Econometric Tool.” Federal Reserve Bank of Cleveland, Working Paper No. 94-20.