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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