The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd


  • Edward C. Prescott
  • Graham V. Candler
Reference work entry


The methodologies used in aerospace engineering and macroeconomics to make quantitative predictions are remarkably similar now that macroeconomics has developed into a hard science. Theory provides engineers with the equations, with many constants that are not well measured. Theory provides macroeconomists with the structure of preference and technology and many parameters that are not well measured. The procedures that are used to select the parameters of the agreed upon structures are what have come to be called ‘calibration’ in macroeconomics.


Calibration Elasticity of intertemporal substitution Equity premium Impatience Lucas critique Measurement Neoclassical growth theory Risk aversion Total factor productivity 

JEL Classifications

D4 D10 
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We thank Gary Hansen, Ellen McGrattan, Berthold Herrendorf, Lee Ohanian, and Bob Lucas for comments. We are responsible for all views expressed.


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Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Edward C. Prescott
    • 1
  • Graham V. Candler
    • 1
  1. 1.