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Small sample performance of indirect inference on DSGE models

Le, Vo Phuong Mai, Meenagh, David, Minford, Patrick and Wickens, Michael 2015. Small sample performance of indirect inference on DSGE models. [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 in small samples, using various models in widespread use. We compare these with tests based on direct inference (using the Likelihood Ratio). We find that both tests have power so that a substantially false model will tend to be rejected by both; but that the power of the indirect inference test is by far the greater, necessitating re-estimation to ensure that the model is tested in its fullest sense. We also find that the small-sample bias with indirect estimation is around half of that with maximum likelihood estimation.

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: 04 Jun 2017 08:26
URI: http://orca.cf.ac.uk/id/eprint/78027

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