Testing Part of a DSGE Model by Indirect Inference

A. Patrick Minford, Michael Wickens and Yongdeng Xu

Oxford Bulletin of Economics and Statistics, 2019, vol. 81, issue 1, 178-194

Abstract: We propose a way of testing a subset of equations of a DSGE model. The test draws on statistical inference for limited information models and the use of indirect inference to test DSGE models. Using the numerical small sample distribution of our test for two subsets of equations of the Smets–Wouters model we show that the test has accurate size and good power in small samples, and better power than using asymptotic distribution theory. In a test of the Smets–Wouters model on US Great Moderation data, we reject the specification of the wage‐price but not the expenditure sector. This points to the wage‐price sector as the source of overall model rejection.

Date: 2019
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Citations: View citations in EconPapers (13)

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https://doi.org/10.1111/obes.12253

Related works:
Working Paper: Testing part of a DSGE model by Indirect Inference (2017)
Working Paper: Testing part of a DSGE model by Indirect Inference (2016)
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