The methodologies used in aerospace engineering and macroeconomics to make quantitative predictions are remarkably similar now that macroeconomics has developed into a hard science. Theory provides engineers with the equations, with many constants that are not well measured. Theory provides macroeconomists with the structure of preference and technology and many parameters that are not well measured. The procedures that are used to select the parameters of the agreed upon structures are what have come to be called ‘calibration’ in macroeconomics.
Calibration Elasticity of intertemporal substitution Equity premium Impatience Lucas critique Measurement Neoclassical growth theory Risk aversion Total factor productivity
This is a preview of subscription content, log in to check access.
We thank Gary Hansen, Ellen McGrattan, Berthold Herrendorf, Lee Ohanian, and Bob Lucas for comments. We are responsible for all views expressed.
Hansen, G.D. 1985. Indivisibility and the business cycle. Journal of Monetary Economics 16: 309–327.CrossRefGoogle Scholar
Hayashi, F., and E.C. Prescott. 2002. The 1990s in Japan: A lost decade. Review of Economic Dynamics 5: 206–235.CrossRefGoogle Scholar
Kydland, F.E., and E.C. Prescott. 1982. Time to build and aggregate fluctuations. Econometrica 50: 1345–1370.CrossRefGoogle Scholar