Equilibrium Heterogeneous-Agent models as measurement tools: Some Monte Carlo evidence

Marco Cozzi

Journal of Economic Dynamics and Control, 2014, vol. 39, issue C, 208-226

Abstract: This paper discusses a series of Monte Carlo experiments designed to evaluate the empirical properties of Heterogeneous-Agent macroeconomic models in the presence of sampling variability. The calibration procedure leads to the welfare analysis being conducted with the wrong parameters. The ability of the calibrated model to correctly predict the long-run welfare changes induced by a set of policy experiments is assessed. The results show that, for the policy reforms with sizable welfare effects (i.e., more than 0.2%), the model always predicts the right sign of the welfare effects. However, the welfare effects can be evaluated with the wrong sign, when they are small and when the sample size is fairly limited. Quantitatively, the maximum errors made in evaluating a policy change are very small for some reforms (in the order of 0.02 percentage points), but bigger for others (in the order of 0.6 percentage points). Finally, having access to better data, in terms of larger samples, does lead to substantial increases in the precision of the welfare effects estimates, though the rate of convergence can be slow.

Keywords: Monte Carlo; Heterogeneous agents; Incomplete markets; Ex-ante policy evaluation; Welfare (search for similar items in EconPapers)
JEL-codes: C15 C54 C68 D52 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Working Paper: Equilibrium Heterogeneous-agent Models As Measurement Tools: Some Monte Carlo Evidence (2013)
Working Paper: Equilibrium Heterogeneous-Agent Models as Measurement Tools: some Monte Carlo Evidence (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:39:y:2014:i:c:p:208-226

DOI: 10.1016/j.jedc.2013.12.003

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