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

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

No 9056, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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 find 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; Dsge-var weight; indirect inference; Likelihood ratio; New classical; New keynesian; Wald statistic (search for similar items in EconPapers)
JEL-codes: C12 C32 C52 E1 (search for similar items in EconPapers)
Date: 2012-07
New Economics Papers: this item is included in nep-dge and nep-ecm
References: Add references at CitEc
Citations: View citations in EconPapers (36)

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