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Taste Parameters as Model Residuals: Assessing the 'Fit' of an Armington Trade Model

19 Pages Posted: 6 Dec 2002  

Russell H. Hillberry

University of Melbourne - Department of Economics; World Bank - Development Research Group (DECRG)

Michael A. Anderson

Washington and Lee University - Department of Economics

Edward J. Balistreri

Iowa State University

Alan K. Fox

U.S. International Trade Commission

Multiple version iconThere are 2 versions of this paper

Date Written: September 2002

Abstract

We note that calibration parameters in a multi-country Armington trade model play a role similar to that of econometric residuals: they allow the data to fit the model exactly. We use this premise to evaluate the 'fit' of a standard multi-country computable general equilibrium (CGE) model. We find that the model relies heavily on these parameters to explain the pattern of trade. In 33 of the 46 commodity groups we assess, modeled economic behavior explains less than 20 percent of the variation in bilateral trade. In a calibration-as-estimation experiment we estimate the commodity-specific elasticities of substitution consistent with a well-fitting model and find that they are substantially higher than widely accepted estimates.

Keywords: calibration as estimation, computable general equilibrium, parameterization

JEL Classification: C68, F17

Suggested Citation

Hillberry, Russell H. and Anderson, Michael A. and Balistreri, Edward J. and Fox, Alan K., Taste Parameters as Model Residuals: Assessing the 'Fit' of an Armington Trade Model (September 2002). Available at SSRN: https://ssrn.com/abstract=329960 or http://dx.doi.org/10.2139/ssrn.329960

Russell H. Hillberry (Contact Author)

University of Melbourne - Department of Economics ( email )

Melbourne, 3010
Australia

World Bank - Development Research Group (DECRG)

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

Michael A. Anderson

Washington and Lee University - Department of Economics ( email )

Lexington, VA 24450
United States

Edward J. Balistreri

Iowa State University ( email )

260 Heady Hall
Ames, IA 50011
United States
3032531674 (Phone)

Alan K. Fox

U.S. International Trade Commission ( email )

500 E St SW
Washington, DC 20436
United States
202-205-3267 (Phone)
202-205-2340 (Fax)

HOME PAGE: http://www.usitc.gov

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