Testing a Model of the UK by the Method of Indirect Inference

33 Pages Posted: 17 Jun 2008

See all articles by David Meenagh

David Meenagh

Cardiff University Business School

Patrick Minford

Cardiff University Business School; Centre for Economic Policy Research (CEPR)

Konstantinos Theodoridis

Cardiff University

Date Written: June 2008

Abstract

We use the method of indirect inference to test a full open economy model of the UK that has been in forecasting use for three decades. The test establishes, using a Wald statistic, whether the parameters of a time-series representation estimated on the actual data lie within some confidence interval of the model-implied distribution. Various forms of time-series representations that could deal with the UK's various changes of monetary regime are tried; two are retained as adequate. The model is rejected under one but marginally accepted under the other, suggesting that with some modifications it could achieve general acceptability and that the testing method is worth investigating further.

Keywords: Bootstrap, Indirect inference, Model evaluation, Non-linear Time Series Models, Open economy models, UK models

JEL Classification: C12, C32

Suggested Citation

Meenagh, David and Minford, Patrick and Theodoridis, Konstantinos, Testing a Model of the UK by the Method of Indirect Inference (June 2008). CEPR Discussion Paper No. DP6849. Available at SSRN: https://ssrn.com/abstract=1146775

David Meenagh (Contact Author)

Cardiff University Business School ( email )

Aberconway Building
Colum Drive
Cardiff, CF10 3EU
United Kingdom
+44 29 2087 5198 (Phone)
+44 29 2087 4419 (Fax)

Patrick Minford

Cardiff University Business School ( email )

Aberconway Building
Colum Drive
Cardiff, CF10 3EU
United Kingdom
+44 29 2087 5728 (Phone)
+44 29 2087 4419 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Konstantinos Theodoridis

Cardiff University ( email )

Aberconway Building
Colum Drive
Cardiff, Wales CF10 3EU
United Kingdom

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