Evaluating macro-economic models in the frequency domain: A note

We present a novel approach to the evaluation of macro-econometric models. Using the European Central Bank's “Area Wide Model”, we implement a Cholesky bootstrap whereby the model is stochastically-simulated using historically-consistent covariances. Using this generated data, and the standardized spectral density, we derive its implied frequency characteristics in terms of persistence, periodicity and spectral fit. We benchmark that against that of the historical data. The testing procedure is applicable to a large class of macro models and thus of general interest.