Taste Parameters as Model Residuals: Assessing the 'Fit' of an Armington Trade Model
19 Pages
Posted: 6 Dec 2002
University of Melbourne - Department of Economics; World Bank - Development Research Group (DECRG)
Washington and Lee University - Department of Economics
Iowa State University
U.S. International Trade Commission
There 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:
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
