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Testing a model of the UK by the method of indirect inference

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Author Info

  • Minford, Patrick

    ()
    (Cardiff Business School)

  • Theodoridis, Konstantinos

    ()
    (Cardiff Business School)

  • Meenagh, David

    ()
    (Cardiff Business School)

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.

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Bibliographic Info

Paper provided by Cardiff University, Cardiff Business School, Economics Section in its series Cardiff Economics Working Papers with number E2007/2.

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Length: 31 pages
Date of creation: Jan 2007
Date of revision: Apr 2008
Publication status: Published in Open Economies Review , vol. 20(2) (2009), 265-291
Handle: RePEc:cdf:wpaper:2007/2

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Web page: http://business.cardiff.ac.uk/research/academic-sections/economics/working-papers
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Keywords: Bootstrap; Model Evaluation; Non-Linear Time Series Models; Indirect inference; open economy models; UK models;

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References

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  1. Lawrence J. Christiano & Martin Eichenbaum, 1990. "Current real business cycle theories and aggregate labor market fluctuations," Working Paper Series, Macroeconomic Issues 90, Federal Reserve Bank of Chicago.
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  8. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 2001. "Nominal rigidities and the dynamic effects of a shock to monetary policy," Working Paper Series WP-01-08, Federal Reserve Bank of Chicago.
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Citations

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Cited by:
  1. Le, Vo Phuong Mai & Minford, Patrick & Wickens, Michael R., 2009. "The 'Puzzles' Methodology: en route to Indirect Inference?," CEPR Discussion Papers 7539, C.E.P.R. Discussion Papers.
  2. Patrick Minford & David Meenagh & Jiang Wang, 2006. " Testing a Simple Structural Model of Endogenous Growth," CDMA Conference Paper Series 0606, Centre for Dynamic Macroeconomic Analysis.
  3. Minford, Patrick & Ou, Zhirong, 2013. "Taylor Rule or optimal timeless policy? Reconsidering the Fed's behavior since 1982," Economic Modelling, Elsevier, vol. 32(C), pages 113-123.
  4. Fan, Jingwen & Minford, Patrick, 2010. "Can the Fiscal Theory of the price level explain UK inflation in the 1970s?," CEPR Discussion Papers 7630, C.E.P.R. Discussion Papers.
  5. Thomai Filippeli, 2011. "Theoretical Priors for BVAR Models & Quasi-Bayesian DSGE Model Estimation," 2011 Meeting Papers 396, Society for Economic Dynamics.

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