What is the truth about DSGE models? Testing by indirect inference

A. Patrick Minford, David Meenagh, Yongdeng Xu and Michael R. Wickens

No 11817, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper addresses the growing gulf between traditional macroeconometrics and the increasingly dominant preference among macroeconomists to use DSGE models and to estimate them using Bayesian estimation with strong priors but not to test them as they are likely to fail conventional statistical tests. This is in conflict with the high scientific ideals with which DSGE models were first invested in their aim of finding true models of the macroeconomy. As macro models are in reality only approximate representations of the economy, we argue that a pseudo-true inferential framework should be used to provide a measure of the robustness of DSGE models.

Keywords: Pseudo-true inference; Dsge models; Wald tests; indirect inference; Likelihood ratio tests; Robustness (search for similar items in EconPapers)
Date: 2017-01
New Economics Papers: this item is included in nep-dge
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Working Paper: What is the truth about DSGE models? Testing by indirect inference (2016)
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