ABSTRACT
The relationship between theory and data has been, from the beginning, a central concern of the new-classical macroeconomics. This much is evident in the title of Robert E. Lucas’s and Thomas J. Sargent’s landmark edited volume, Rational Expectations and Econometric Practice (1981). With the advent of real-business-cycle models, many new classical economists have turned to calibration methods. The new classical macroeconomics is now divided between calibrators and estimators. But the debate is not a parochial one, raising, as it does, issues about the relationships of models to reality and the nature of econometrics that should be important to every school of macroeconomic thought, indeed to all applied economics. The stake in this debate is the future direction of quantitative macroeconomics. It is, therefore, critical to understand the root issues.
