This paper presents testing procedures for comparison of misspecified calibrated models. The proposed tests are of the Vuong-type (Vuong, 1989; Rivers and Vuong, 2002). In our framework, an econometrician selects values for the parameters in order to match some characteristics of the data with those implied by the competing theoretical models. We assume that all competing models are misspecified, and suggest a test for the null hypothesis that all considered models provide equivalent fit to the data characteristics, against the alternative that one of the models is a better approximation. We consider both nested and non-nested cases. Our discussion includes the case when parameters are estimated to match one set of moments and the models are evaluated by their ability to match another. We also relax the dependence of models' ranking on the choice of weight matrix by suggesting averaged and sup procedures, as well as constructing confidence sets for weight matrices favorable for one of the models. The proposed method is illustrated by comparing standard cash-in-advance and portfolio adjustment cost models. Our comparison is based on the ability of the two models to match the impulse responses of output and inflation to money growth shocks. We find that both models provide equally poor fit to the data and therefore conclude that the frictions underlying persistent liquidity effect of the PAC model do not help explain the impulse response dynamics of output and inflation observed in the data.
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Paper provided by Microeconomics.ca Website in its series Micro Theory Working Papers with number
vadim_marmer-2008-14.
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Gourieroux, C & Monfort, A & Renault, E, 1993.
"Indirect Inference,"
Journal of Applied Econometrics,
John Wiley & Sons, Ltd., vol. 8(S), pages S85-118, Suppl. De.
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Gourieroux, C. & Monfort, A. & Renault, E., 1992.
"Indirect Inference,"
Papers
92.279, Toulouse - GREMAQ.
Allan Gregory & Gregor Smith, 1990.
"Calibration as estimation,"
Econometric Reviews,
Taylor and Francis Journals, vol. 9(1), pages 57-89.
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