Some problems in the testing of DSGE models
We review the methods used in many papers to evaluate DSGE models by comparing their simulated moments and other features with data equivalents. We note that they select, scale and characterise the shocks without reference to the data; crucially they fail to use the joint distribution of the features under comparison. We illustrate this point by recomputing an assessment of a two-country model in a recent paper; we find that the paper's conclusions are essentially reversed.
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- Frank Smets & Raf Wouters, 2003.
"An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area,"
Journal of the European Economic Association,
MIT Press, vol. 1(5), pages 1123-1175, 09.
- Frank Smets & Raf Wouters, 2002. "An estimated dynamic stochastic general equilibrium model of the euro area," Working Paper Research 35, National Bank of Belgium.
- Frank Smets & Raf Wouters, 2007.
"Shocks and Frictions in US Business Cycles : a Bayesian DSGE Approach,"
Working Paper Research
109, National Bank of Belgium.
- Frank Smets & Rafael Wouters, 2007. "Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach," American Economic Review, American Economic Association, vol. 97(3), pages 586-606, June.
- Smets, Frank & Wouters, Raf, 2007. "Shocks and frictions in US business cycles: a Bayesian DSGE approach," Working Paper Series 0722, European Central Bank.
- Smets, Frank & Wouters, Rafael, 2007. "Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach," CEPR Discussion Papers 6112, C.E.P.R. Discussion Papers.
- Henriksen, Espen & Kydland, Finn & Sustek, Roman, 2008.
"The High Cross-Country Correlations of Prices and Interest Rates,"
10963, University Library of Munich, Germany.
- Espen Henriksen & Finn E. Kydland & Roman Sustek, . "The High Cross-Country Correlations of Prices and Interest Rates," Discussion Papers 11/01, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
- Kollmann, Robert, 2009. "Household Heterogeneity and the Real Exchange Rate: Still a Puzzle," CEPR Discussion Papers 7301, C.E.P.R. Discussion Papers.
- Le, Vo Phuong Mai & Meenagh, David & Minford, Patrick & Wickens, Michael R., 2009.
"Two Orthogonal Continents? Testing a Two-country DSGE Model of the US and EU Using Indirect Inference,"
CEPR Discussion Papers
7385, C.E.P.R. Discussion Papers.
- Le, Vo Phuong Mai & Meenagh, David & Minford, Patrick & Wickens, Michael, 2009. "Two Orthogonal Continents: Testing a Two-country DSGE Model of the US and EU Using Indirect Inference," Cardiff Economics Working Papers E2009/3, Cardiff University, Cardiff Business School, Economics Section, revised Dec 2009.
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