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Testing macroeconomic models by indirect inference on unfiltered data

We extend the method of indirect inference testing to data that is not filtered and so may be non-stationary. We apply the method to an open economy real business cycle model on UK data. We review the method using a Monte Carlo experiment and find that it performs accurately and has good power.

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Paper provided by Cardiff University, Cardiff Business School, Economics Section in its series Cardiff Economics Working Papers with number E2012/17.

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Length: 22 pages
Date of creation: Jul 2012
Date of revision:
Handle: RePEc:cdf:wpaper:2012/17
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  1. Bennett T. McCallum & Edward Nelson, 1998. "Performance of Operational Policy Rules in an Estimated Semi-Classical Structural Model," NBER Working Papers 6599, National Bureau of Economic Research, Inc.
  2. Sungbae An & Frank Schorfheide, 2006. "Bayesian analysis of DSGE models," Working Papers 06-5, Federal Reserve Bank of Philadelphia.
  3. Marco Del Negro & Frank Schorfheide, 2002. "Priors from general equilibrium models for VARs," FRB Atlanta Working Paper 2002-14, Federal Reserve Bank of Atlanta.
  4. Dridi, Ramdan & Guay, Alain & Renault, Eric, 2007. "Indirect inference and calibration of dynamic stochastic general equilibrium models," Journal of Econometrics, Elsevier, vol. 136(2), pages 397-430, February.
  5. Meenagh, David & Minford, Patrick & Nowell, Eric & Sofat, Prakriti, 2010. "Can a real business cycle model without price and wage stickiness explain UK real exchange rate behaviour?," Journal of International Money and Finance, Elsevier, vol. 29(6), pages 1131-1150, October.
  6. 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.
  7. Gourieroux, C. & Monfort, A. & Renault, E., 1992. "Indirect Inference," Papers 92.279, Toulouse - GREMAQ.
  8. Fair, Ray C & Taylor, John B, 1983. "Solution and Maximum Likelihood Estimation of Dynamic Nonlinear Rational Expectations Models," Econometrica, Econometric Society, vol. 51(4), pages 1169-85, July.
  9. McCallum, Bennett T & Nelson, Edward, 1999. "An Optimizing IS-LM Specification for Monetary Policy and Business Cycle Analysis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(3), pages 296-316, August.
  10. McCallum, Bennett T, 1976. "Rational Expectations and the Natural Rate Hypothesis: Some Consistent Estimates," Econometrica, Econometric Society, vol. 44(1), pages 43-52, January.
  11. Hall, Alastair & Inoue, Atsushi & Nason M, James & Rossi, Barbara, 2007. "Information Criteria for Impulse Response Function Matching Estimation of DSGE Models," Working Papers 07-04, Duke University, Department of Economics.
  12. Gregory, Allan W & Smith, Gregor W, 1991. "Calibration as Testing: Inference in Simulated Macroeconomic Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 9(3), pages 297-303, July.
  13. Minford, Patrick & Agenor, Pierre-Richard & Nowell, Eric, 1986. "A new classical econometric model of the world economy," Economic Modelling, Elsevier, vol. 3(3), pages 154-174, July.
  14. Minford, Patrick & Marwaha, Satwant & Matthews, Kent & Sprague, Alison, 1984. "The Liverpool macroeconomic model of the United Kingdom," Economic Modelling, Elsevier, vol. 1(1), pages 24-62, January.
  15. Martin Fukac & Adrian Pagan, 2008. "Limited Information Estimation and Evaluation of DSGE Models," Reserve Bank of New Zealand Discussion Paper Series DP2008/11, Reserve Bank of New Zealand.
  16. Sungbae An & Frank Schorfheide, 2007. "Bayesian Analysis of DSGE Models—Rejoinder," Econometric Reviews, Taylor & Francis Journals, vol. 26(2-4), pages 211-219.
  17. Smith, A A, Jr, 1993. "Estimating Nonlinear Time-Series Models Using Simulated Vector Autoregressions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(S), pages S63-84, Suppl. De.
  18. David N. DeJong & Chetan Dave, 2007. "Introduction to Structural Macroeconometrics
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  19. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, December.
  20. Allan W. Gregory & Gregor W. Smith, 1991. "Calibration in Macroeconomics," Working Papers 826, Queen's University, Department of Economics.
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