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Testing a Model of the UK by the Method of Indirect Inference

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  • Meenagh, David
  • Minford, Patrick
  • Theodoridis, Konstantinos

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 C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6849.

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Date of creation: Jun 2008
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Handle: RePEc:cpr:ceprdp:6849

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Keywords: Bootstrap; Indirect inference; Model evaluation; Non-linear Time Series Models; Open economy models; UK models;

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References

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Citations

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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. Vo Phuong Mai Le & Patrick Minford & Michael Wickens, 2009. " The ‘Puzzles’ Methodology: En Route to Indirect Inference?," CDMA Conference Paper Series 0903, Centre for Dynamic Macroeconomic Analysis.
  3. Fan, Jingwen & Minford, Patrick, 2009. "Can the Fiscal Theory of the price level explain UK inflation in the 1970s?," Cardiff Economics Working Papers E2009/26, Cardiff University, Cardiff Business School, Economics Section, revised Mar 2011.
  4. Thomai Filippeli, 2011. "Theoretical Priors for BVAR Models & Quasi-Bayesian DSGE Model Estimation," 2011 Meeting Papers 396, Society for Economic Dynamics.
  5. 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.

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