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The 'Puzzles' methodology: en route to Indirect Inference?

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  • Le, Vo Phuong Mai

    ()
    (Cardiff Business School)

  • Minford, Patrick

    ()
    (Cardiff Business School)

  • Wickens, Michael

    ()
    (Cardiff Business School)

Abstract

We review the methods used in many papers to evaluate DSGE models by comparing their simulated moments with data moments. We compare these with the method of Indirect Inference to which they are closely related. We illustrate the comparison with contrasting assessments of a two-country model in two recent papers. We conclude that Indirect Inference is the proper end point of the puzzles methodology.

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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 E2009/22.

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Length: 24 pages
Date of creation: Nov 2009
Date of revision:
Handle: RePEc:cdf:wpaper:2009/22

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Keywords: Bootstrap; US-EU model; DSGE; VAR; indirect inference; Wald statistic; anomaly; puzzle;

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References

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  1. Espen Henriksen & Finn E. Kydland & Roman Sustek, . "The High Cross-Country Correlations of Prices and Interest Rates," Discussion Papers 11/01, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
  2. Lawrence J. Christiano & Martin Eichenbaum & Charles Evans, 2001. "Nominal rigidities and the dynamic effects of a shock to monetary policy," Proceedings, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, issue Jun.
  3. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2008. "New Keynesian models: not yet useful for policy analysis," Staff Report, Federal Reserve Bank of Minneapolis 409, Federal Reserve Bank of Minneapolis.
  4. V. V Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2002. "Can Sticky Price Models Generate Volatile and Persistent Real Exchange Rates?," Review of Economic Studies, Oxford University Press, vol. 69(3), pages 533-563.
  5. Gourieroux, C. & Monfort, A. & Renault, E., 1992. "Indirect Inference," Papers, Toulouse - GREMAQ 92.279, Toulouse - GREMAQ.
  6. Meenagh, David & Minford, Patrick & Nowell, Eric & Sofat, Prakriti & Srinivasan, Naveen, 2008. "Can the Facts of UK Inflation Persistence be Explained by Nominal Rigidity?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6834, C.E.P.R. Discussion Papers.
  7. Canova, Fabio & Sala, Luca, 2009. "Back to square one: Identification issues in DSGE models," Journal of Monetary Economics, Elsevier, Elsevier, vol. 56(4), pages 431-449, May.
  8. Le, Vo Phuong Mai & Meenagh, David & Minford, Patrick & Wickens, Michael, 2009. "Two Orthogonal Continents: Testing a Two-country DSGE Model of the US and EU Using Indirect Inference," Cardiff Economics Working Papers E2009/3, Cardiff University, Cardiff Business School, Economics Section, revised Dec 2009.
  9. Frank Smets & Raf Wouters, 2003. "An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area," Journal of the European Economic Association, MIT Press, MIT Press, vol. 1(5), pages 1123-1175, 09.
  10. Del Negro, Marco & Schorfheide, Frank & Smets, Frank & Wouters, Rafael, 2007. "On the Fit of New Keynesian Models," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 25, pages 123-143, April.
  11. Frank Smets & Raf Wouters, 2007. "Shocks and Frictions in US Business Cycles : a Bayesian DSGE Approach," Working Paper Research, National Bank of Belgium 109, National Bank of Belgium.
  12. Le, Vo Phuong Mai & Minford, Patrick & Wickens, Michael R., 2009. "How much nominal rigidity is there in the US Economy? Testing a New Keynesian DSGE model using indirect inference," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7537, C.E.P.R. Discussion Papers.
  13. Allan W. Gregory & Gregor W. Smith, 1987. "Calibration as Estimation," Working Papers, Queen's University, Department of Economics 700, Queen's University, Department of Economics.
  14. Meenagh, David & Minford, Patrick & Theodoridis, Konstantinos, 2008. "Testing a Model of the UK by the Method of Indirect Inference," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6849, C.E.P.R. Discussion Papers.
  15. Meenagh, David & Minford, Patrick & Wickens, Michael R, 2008. "Testing a DSGE Model of the EU Using Indirect Inference," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6838, C.E.P.R. Discussion Papers.
  16. Smith, A A, Jr, 1993. "Estimating Nonlinear Time-Series Models Using Simulated Vector Autoregressions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 8(S), pages S63-84, Suppl. De.
  17. Gregory, Allan W & Smith, Gregor W, 1991. "Calibration as Testing: Inference in Simulated Macroeconomic Models," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 9(3), pages 297-303, July.
  18. Arnab Bhattacharjee & Christoph Thoenissen, 2007. "Money And Monetary Policy In Dynamic Stochastic General Equilibrium Models," Manchester School, University of Manchester, University of Manchester, vol. 75(s1), pages 88-122, 09.
  19. Kollmann, Robert, 2009. "Household Heterogeneity and the Real Exchange Rate: Still a Puzzle," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7301, C.E.P.R. Discussion Papers.
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Cited by:
  1. Minford, Patrick & Ou, Zhirong, 2009. "Taylor Rule or Optimal Timeless Policy? Reconsidering the Fed's behaviour since 1982," Cardiff Economics Working Papers E2009/19, Cardiff University, Cardiff Business School, Economics Section, revised May 2010.
  2. Minford, Patrick & Ou, Zhirong & Wickens, Michael, 2012. "Revisiting the Great Moderation: policy or luck?," Cardiff Economics Working Papers E2012/9, Cardiff University, Cardiff Business School, Economics Section, revised Apr 2014.
  3. Le, Vo Phuong Mai & Meenagh, David & Minford, Patrick & Wickens, Michael R., 2012. "Testing DSGE models by Indirect inference and other methods: some Monte Carlo experiments," CEPR Discussion Papers, C.E.P.R. Discussion Papers 9056, C.E.P.R. Discussion Papers.
  4. Davidson, James & Meenagh, David & Minford, Patrick & Wickens, Michael, 2010. "Why crises happen - nonstationary macroeconomics," Cardiff Economics Working Papers E2010/13, Cardiff University, Cardiff Business School, Economics Section.
  5. Meenagh, David & Minford, Patrick & Nowell, Eric & Sofat, Prakriti, 2005. "Can a Real Business Cycle Model without price and wage stickiness explain UK real exchange rate behaviour?," Cardiff Economics Working Papers E2005/2, Cardiff University, Cardiff Business School, Economics Section, revised Mar 2010.

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