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Title:Testing DSGE models by indirect inference and other methods: Some Monte Carlo experiments PDF Logo
Authors:Vo Phuong Mai Le
Meenagh, David
Minford, Patrick
Wickens, Michael
Issue Date:2012
Series/Report no.:Cardiff Economics Working Papers E2012/15
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.
Subjects:bootstrap
DSGE
New Keynesian
New Classical
indirect inference
Wald statistic
likelihood ratio
DSGE-VAR weight
JEL:C12
C32
C52
E1
Document Type:Working Paper
Appears in Collections:Cardiff Economics Working Papers

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