Testing DSGE models by Indirect inference and other methods: some Monte Carlo experiments

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

No E2012/15, Cardiff Economics Working Papers from Cardiff University, Cardiff Business School, Economics Section

Abstract: Using Monte Carlo experiments, we examine the performance of Indirect Inference tests of DSGE models, usually versions of the Smets-Wouters New Keynesian model of the US postwar period. We compare these with tests based on direct inference (using the Likelihood Ratio), and on the Del Negro Schorfheide DSGE VAR weight. We ?nd that the power of all three tests is substantial so that a false model will tend to be rejected by all three,but that the power of the indirect inference tests are by far the greatest, necessitating re-estimation by indirect inference to ensure that the model is tested in its fullest sense.

Keywords: Bootstrap; DSGE; New Keynesian; New Classical; indirect inference; Wald statistic; likelihood ratio; DSGE-VAR weight (search for similar items in EconPapers)
JEL-codes: C12 C32 C52 E1 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2012-06
New Economics Papers: this item is included in nep-ets
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Citations: View citations in EconPapers (30)

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Working Paper: Testing DSGE models by Indirect inference and other methods: some Monte Carlo experiments (2012)
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