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

Le, Vo Phuong Mai, Meenagh, David ORCID: https://orcid.org/0000-0002-9930-7947, Minford, Patrick and Wickens, Michael ORCID: https://orcid.org/0000-0002-6862-0674 2012. Testing DSGE models by Indirect Inference and other methods: some Monte Carlo experiments. [Working Paper]. Cardiff Economics Working Papers, Cardiff: Cardiff University.

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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 post-war 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.

Item Type:	Monograph (Working Paper)
Date Type:	Publication
Status:	Published
Schools:	Business (Including Economics)
Subjects:	H Social Sciences > HB Economic Theory
Publisher:	Cardiff University
Date of First Compliant Deposit:	30 March 2016
Last Modified:	28 Oct 2022 10:21
URI:	https://orca.cardiff.ac.uk/id/eprint/77938

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