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Title:Testing a DSGE model of the EU using indirect inference PDF Logo
Authors:Meenagh, David
Minford, Patrick
Wickens, Michael
Issue Date:2008
Series/Report no.:Cardiff Economics Working Papers E2008/11
Abstract:We use the method of indirect inference, using the bootstrap, to test the Smets and Wouters model of the EU against a VAR auxiliary equation describing their data. We find that their model generates excessive variance compared with the data. But their model fits the dynamic facts quite well if the errors have the properties assumed by SW but scaled down. We compare a New Classical version of the model which also performs reasonably if error properties are chosen using New Classical priors (notably excluding shocks to preferences). Both versions have (different) difficulties fitting the data if the actual error properties are used. A model combining rigid and flexible-wage/price sectors, with a weight of around 5% on the rigid sector, does best in fitting the data.
Subjects:bootstrap
DSGE Model
VAR model
Model of EU
indirect inference
Wald statistic
JEL:C12
C32
Document Type:Working Paper
Appears in Collections:Cardiff Economics Working Papers, Cardiff Business School, Cardiff University

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