Testing a DSGE model of the EU using indirect inference

David Meenagh, A. Patrick Minford and Michael Wickens

No E2008/11, Cardiff Economics Working Papers from Cardiff University, Cardiff Business School, Economics Section

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. But their model passes the Wald test easily if the errors have the properties assumed by SW but scaled down. We compare a New Classical version of the model which also passes the test easily if error properties are chosen using New Classical priors (notably excluding shocks to preferences). Both versions have (different) difficulties fitting the data if the actual error properties are used. However, a version embedding a small sector with Calvo contracts in an otherwise New Classical economy fits the data well without any scaling.

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)
Pages: 41 pages
Date: 2008-05, Revised 2008-12
New Economics Papers: this item is included in nep-cba, nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Published in Open Economies Review , vol. 20(4) (2009), 435-471

Downloads: (external link)
http://carbsecon.com/wp/E2008_11.pdf (application/pdf)

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)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cdf:wpaper:2008/11

Access Statistics for this paper

More papers in Cardiff Economics Working Papers from Cardiff University, Cardiff Business School, Economics Section Contact information at EDIRC.
Bibliographic data for series maintained by Yongdeng Xu ().