Some problems in the testing of DSGE models

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Le, Vo Phuong Mai; Minford, Patrick; Wickens, Michael; Cardiff University;
  • Publisher: Cardiff University
  • Subject: HB

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 joi... View more
  • References (6)

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    [2] Henriksen, E., Finn E. Kydland, and Roman Sustek (2008) ‘The High Cross-Country Correlations of Prices and Interest Rates’, mimeo, Bank of England

    [3] Kollmann, Robert (2009) ‘Household Heterogeneity and the Real Exchange Rate: Still a Puzzle’, CEPR Discussion Paper No 7301, C.E.P.R., London.

    [4] Le, M., D. Meenagh, P. Minford and M. Wickens (2009) ‘Two Orthogonal Continents: Testing a Two-country DSGE Model of the US and EU Using Indirect Inference’, Cardi¤ University Economics Working Paper, forthcoming in Open Economies Review.

    [5] Smets, F. & R. 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.

    [6] Smets, F. & R. 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

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