Testing a DSGE model of the EU using indirect inference
AbstractWe use the method of indirect inference, using the bootstrap, to test the Smets and Wouters model of the EU against a VAR auxiliary equation describing their data; the test is based on the Wald statistic. We find that their model generates excessive variance compared with the data. But their model passes the Wald test easily if the errors have the properties assumed by SW but scaled down. We compare a New Classical version of the model which also passes the test easily if error properties are chosen using New Classical priors (notably excluding shocks to preferences). Both versions have (different) difficulties fitting the data if the actual error properties are used.
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Bibliographic InfoPaper provided by Centre for Dynamic Macroeconomic Analysis in its series CDMA Conference Paper Series with number 0801.
Date of creation: Sep 2008
Date of revision:
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Bootstrap; DSGE Model; VAR model; Model of EU; indirect inference; Wald statistic.;
Find related papers by JEL classification:
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-09-20 (All new papers)
- NEP-CBA-2008-09-20 (Central Banking)
- NEP-DGE-2008-09-20 (Dynamic General Equilibrium)
- NEP-ECM-2008-09-20 (Econometrics)
- NEP-EEC-2008-09-20 (European Economics)
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