How much nominal rigidity is there in the US Economy? Testing a New Keynesian DSGE model using indirect inference
AbstractWe evaluate the Smets-Wouters model of the US using indirect inference with a VAR representation of the main US data series. We find that the original New Keynesian SW model is on the margin of acceptance when SW's own estimates of the variances and time-series behaviour of the structural errors are used. However when the structural errors implied jointly by the data and the structural model are used the model is rejected. We also construct an alternative (New Classical) version of the model with flexible wages and prices and a one-period information lag. This too is rejected. But when small proportions of both the labour and product markets are assumed to be imperfectly competitive within otherwise flexible markets the resulting `weighted' model is accepted.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7537.
Date of creation: Nov 2009
Date of revision:
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Other versions of this item:
- Le, Vo Phuong Mai & Meenagh, David & Minford, Patrick & Wickens, Michael, 2011. "How much nominal rigidity is there in the US economy? Testing a new Keynesian DSGE model using indirect inference," Journal of Economic Dynamics and Control, Elsevier, vol. 35(12), pages 2078-2104.
- Le, Vo Phuong Mai & Meenagh, David & Minford, Patrick & Wickens, Michael, 2008. "How much nominal rigidity is there in the US economy? Testing a New Keynesian DSGE Model using indirect inference," Cardiff Economics Working Papers E2008/32, Cardiff University, Cardiff Business School, Economics Section, revised Jul 2011.
- C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
- E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-11-27 (All new papers)
- NEP-CBA-2009-11-27 (Central Banking)
- NEP-DGE-2009-11-27 (Dynamic General Equilibrium)
- NEP-ECM-2009-11-27 (Econometrics)
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