How much nominal rigidity is there in the US economy? Testing a New Keynesian DSGE Model using indirect inference

Vo Phuong Mai Le, David Meenagh, A. Patrick Minford and Michael Wickens

No E2008/32, Cardiff Economics Working Papers from Cardiff University, Cardiff Business School, Economics Section

Abstract: We evaluate the Smets-Wouters New Keynesian model of the US postwar period, using indirect inference, the bootstrap and a VAR representation of the data. We find that the model is strongly rejected. While an alternative (New Classical) version of the model fares no better, adding limited nominal rigidity to it produces a `weighted' model version closest to the data. But on data from 1984 onwards - the `great moderation' - the best model version is one with a high degree of nominal rigidity, close to New Keynesian. Our results are robust to a variety of methodological and numerical issues.

Keywords: Bootstrap; US model; DGSE; VAR; New Keynesian; New Classical; indirect inference; Wald statistic; regime change; structural break; great moderation (search for similar items in EconPapers)
JEL-codes: C12 C32 C52 E1 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2008-12, Revised 2011-07
New Economics Papers: this item is included in nep-cba and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (144)

Forthcoming in Journal of Economic Dynamics and Control

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Related works:
Journal Article: How much nominal rigidity is there in the US economy? Testing a new Keynesian DSGE model using indirect inference (2011)
Working Paper: How much nominal rigidity is there in the US Economy? Testing a New Keynesian DSGE model using indirect inference (2009)
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