Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/109073
Authors: 
Le, Vo Phuong Mai
Meenagh, David
Minford, Patrick
Wickens, Michael
Year of Publication: 
2015
Series/Report no.: 
Cardiff Economics Working Papers E2015/2
Abstract: 
Using Monte Carlo experiments, we examine the performance of indirect inference tests of DSGE models in small samples, using various models in widespread use. We compare these with tests based on direct inference (using the Likelihood Ratio). We find that both tests have power so that a substantially false model will tend to be rejected by both; but that the power of the indirect inference test is by far the greater, necessitating re-estimation to ensure that the model is tested in its fullest sense. We also find that the small-sample bias with indirect estimation is around half of that with maximum likelihood estimation.
Subjects: 
Bootstrap
DSGE
Indirect Inference
Likelihood Ratio
New Classical
New Keynesian
Wald statistic
JEL: 
C12
C32
C52
E1
Document Type: 
Working Paper

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