Working Paper: NBER ID: w10137
Authors: Hui Huang; John Whalley
Abstract: How to best utilize the wide range of estimates of elasticities that characterize econometric literature when using calibrated models is the issue we address here through a blending of econometrics and calibration into calibmetrics. Econometrically generated literature based elasticity parameters are typically used in calibrated models a very simple manner, appealing to a single value. Here we explicitly incorporate the full range of values of elasticities yielded by econometric studies in both the calibration procedure employed and the uses made of a calibrated model. This is important because the ranges for such values can be large. This allows us to assess how uncertainty in exogenously specified parameter values affects the performance of calibrated models, and how much added information is obtained by using the full range of literature estimates of key parameters in calibration.
Keywords: calibration; elasticity estimates; trade-wage decompositions; econometrics
JEL Codes: C5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| choice of elasticity parameters (C51) | outcomes of calibrated models (C52) |
| elasticity of substitution between skilled and unskilled labor (J24) | wage changes due to trade shocks and technical changes (F16) |
| distribution of elasticity estimates (D39) | more accurate reflection of underlying economic relationships (E19) |
| parameter values differ (C52) | likelihood of observing different wage changes across economies (J31) |
| use of the full range of elasticity estimates (C51) | impact on likelihood calculations (D81) |
| use of the full range of elasticity estimates (C51) | effect on decomposition results (C22) |