Measures Of Fit For The Macroeconomic Calibrated Models

Since Gonggang and Willi Semmler (2003) first introduced the RBC model and calibration method in domestic journals, Chinese scholars mainly focus on the empirical analysis of China’s economic through real business cycle model. But for the calibration method used in the RBC model is less studied, this paper first introduce a new measure tool of fit for calibrated models to evaluate the calibration results of the real business cycle model. Using the domestic data to analysis to make the model fit chinese economic facts better than before, and laying the groundwork for the future research.This section highlights a new measure tool of fit for calibrated models which is different from the conventional Kydland-Prenscott index——relative mean square approximation error (RMSAE). It is not assumed that the model accurately describes data from the actual economy; the economic model is not a null hypothesis in the statistical sense. Rather, the economic model is viewed as an approximation to the stochastic processes generating the actual data, and goodness-of-fit measures are proposed to measure the quality of this approximation. A standard device stochastic error is used to motivate the goodness-of-fit measures. These measures answer the question, How much random error would have to be added to the data generated by the model so that the auto-covariances implied by the model + error match the auto-variances of the observed data?Then, the procedure is applied to a standard real business cycle model to fit the China economic reality, and compare with reality through the spectrum analysis and relative mean square approximation error (RMSAE). Because the measure fit is not ideal, combining with the Chinese economic characteristics, we introduce government spending shocks to the real business cycle model in order to fit better with the economic reality. The size of the relative mean square approximation error shows that, this model fit investment best, both its growth and fluctuation; the measure fit of consumption and output is lower than investment. The model perform excellently in the respect of growth but jut so so in the respect of fluctuation. However,the measure fit of employment is the lowest between all of the indicators. Of course, the real business cycle model with government spending shocks do better than the base one, but the measure fit of employment is still not ideal which is associated with the set of the model. Future research can introduce inter-temporal substitution of the leisure and employment externality into the real business cycle model to fit the employment index better.