Two Orthogonal Continents: Testing a Two-country DSGE Model of the US and EU Using Indirect Inference
We examine a two country model of the EU and the US. Each has a small sector of the labour and product markets in which there is wage/price ridigity, but otherwise enjoys flexible wages and prices with a one quarter information lag. Using a VAR to represent the data, we find the model as a whole rejected. Howerver it is accepted for particular features of the data, such as output and (marginally) inflation behaviour. The model highlights a lack of spillovers between the US and the EU.
|Date of creation:||Mar 2009|
|Date of revision:||Dec 2009|
|Publication status:||Published in Open Economies Review 21(1) pp. 23-44 February 2010.|
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Web page: http://business.cardiff.ac.uk/research/academic-sections/economics/working-papers
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- Frank Smets & Raf Wouters, 2002.
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CEPR Discussion Papers
7537, C.E.P.R. Discussion Papers.
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- 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.
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