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Testing part of a DSGE model by indirect inference

Minford, Anthony, Wickens, Michael and Xu, Yongdeng 2018. Testing part of a DSGE model by indirect inference. Oxford Bulletin of Economics and Statistics 10.1111/obes.12253
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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.

Item Type: Article
Date Type: Published Online
Status: Published
Schools: Business (Including Economics)
Subjects: C Auxiliary Sciences of History > C Auxiliary sciences of history (General)
E History America > E11 America (General)
Publisher: Wiley: 24 months
ISSN: 0305-9049
Date of First Compliant Deposit: 11 June 2018
Date of Acceptance: 14 May 2018
Last Modified: 16 Oct 2018 15:47
URI: http://orca.cf.ac.uk/id/eprint/115765

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