Testing a DSGE model of the EU using indirect inference

David Meenagh, A. Patrick Minford and Michael Wickensy

CDMA Conference Paper Series from Centre for Dynamic Macroeconomic Analysis

Abstract: We use the method of indirect inference, using the bootstrap, to test the Smets and Wouters model of the EU against a VAR auxiliary equation describing their data; the test is based on the Wald statistic. We find that their model generates excessive variance compared with the data. If the errors are scaled down, then the original model marginally passes the Wald test. We compare a New Classical version of the model which passes the test but generates a combination of excessive inflation variance and inadequate output variance. If the large consumption and investment errors are removed as possibly due to low frequency events, then the New Classical version passes easily while the original version is strongly rejected.

Keywords: Bootstrap; DSGE Model; VAR model; Model of EU; indirect inference; Wald statistic. (search for similar items in EconPapers)
JEL-codes: C12 C32 (search for similar items in EconPapers)
Date: 2007-11, Revised 2008-03
New Economics Papers: this item is included in nep-cba, nep-dge, nep-ecm, nep-eec and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Testing a DSGE Model of the EU Using Indirect Inference (2009)
Working Paper: Testing a DSGE model of the EU using indirect inference (2008)
Working Paper: Testing a DSGE Model of the EU Using Indirect Inference (2008)
Working Paper: Testing a DSGE model of the EU using indirect inference (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:san:cdmacp:0709

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