Testing Part of a DSGE Model by Indirect Inference

17 Pages Posted: 11 Jan 2019

See all articles by Patrick Minford

Patrick Minford

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

Michael Wickens

University of York; Cardiff Business School; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

Yongdeng Xu

Cardiff University - Cardiff Business School - Economics Section

Date Written: February 2019

Abstract

We propose a way of testing a subset of equations of a DSGE model. The test draws on statistical inference for limited information models and the use of indirect inference to test DSGE models. Using the numerical small sample distribution of our test for two subsets of equations of the Smets–Wouters model we show that the test has accurate size and good power in small samples, and better power than using asymptotic distribution theory. In a test of the Smets–Wouters model on US Great Moderation data, we reject the specification of the wage‐price but not the expenditure sector. This points to the wage‐price sector as the source of overall model rejection.

Suggested Citation

Minford, Patrick and Wickens, Michael and Xu, Yongdeng, Testing Part of a DSGE Model by Indirect Inference (February 2019). Oxford Bulletin of Economics and Statistics, Vol. 81, Issue 1, pp. 178-194, 2019. Available at SSRN: https://ssrn.com/abstract=3313675 or http://dx.doi.org/10.1111/obes.12253

Patrick Minford (Contact Author)

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

Michael Wickens

University of York ( email )

Heslington
York, YO10 5DD
United Kingdom
+44 1904 433 764 (Phone)
+44 1904 433 575 (Fax)

Cardiff Business School ( email )

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Yongdeng Xu

Cardiff University - Cardiff Business School - Economics Section ( email )

Cardiff CF10 3EU
United Kingdom

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
0
Abstract Views
103
PlumX Metrics