How much nominal rigidity is there in the US economy? Testing a new Keynesian DSGE model using indirect inference

Le, Vo Phuong Mai ORCID: https://orcid.org/0000-0003-3374-9694, Meenagh, David ORCID: https://orcid.org/0000-0002-9930-7947, Minford, Anthony Patrick Leslie ORCID: https://orcid.org/0000-0003-2499-935X and Wickens, Michael ORCID: https://orcid.org/0000-0002-6862-0674 2011. How much nominal rigidity is there in the US economy? Testing a new Keynesian DSGE model using indirect inference. Journal of Economic Dynamics and Control 35 (12) , pp. 2078-2104. 10.1016/j.jedc.2011.08.009

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Abstract

We evaluate the Smets–Wouters New Keynesian model of the US postwar period, using indirect inference, the bootstrap and a VAR representation of the data. We find that the model is strongly rejected. While an alternative (New Classical) version of the model fares no better, adding limited nominal rigidity to it produces a ‘weighted’ model version closest to the data. But on data from 1984 onwards – the ‘great moderation’ – the best model version is one with a high degree of nominal rigidity, close to New Keynesian. Our results are robust to a variety of methodological and numerical issues.

Item Type:	Article
Date Type:	Publication
Status:	Published
Schools:	Advanced Research Computing @ Cardiff (ARCCA) Business (Including Economics)
Subjects:	D History General and Old World > D History (General) > D839 Post-war History, 1945 on E History America > E151 United States (General) H Social Sciences > HA Statistics H Social Sciences > HB Economic Theory H Social Sciences > HC Economic History and Conditions H Social Sciences > HG Finance J Political Science > JK Political institutions (United States)
Uncontrolled Keywords:	Bootstrap; US model; DSGE; VAR; New Keynesian; New classical; Indirect inference; Wald statistic; Regime change; Structural break; Great moderation
Publisher:	Elsevier
ISSN:	0165-1889
Last Modified:	19 Oct 2022 08:40
URI:	https://orca.cardiff.ac.uk/id/eprint/18669

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