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Testing DSGE Models by indirect inference: a survey of recent findings

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Abstract
We review recent findings in the application of Indirect Inference to DSGE models. We show that researchers should tailor the power of their test to the model under investigation in order to achieve a balance between high power and model tractability; this will involve choosing only a limited number of variables on whose behaviour they should focus. Also recent work reveals that it makes little difference which these variables are or how their behaviour is measured whether via A VAR, IRFs or Moments. We also review identification issues and whether alternative evaluation methods such as forecasting or Likelihood ratio tests are potentially helpful.

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  • Meenagh, David & Minford, Patrick & Wickens, Michael & Xu, Yongdeng, 2018. "Testing DSGE Models by indirect inference: a survey of recent findings," Cardiff Economics Working Papers E2018/14, Cardiff University, Cardiff Business School, Economics Section.
    • Handle: RePEc:cdf:wpaper:2018/14
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    More about this item

    Keywords

    Pseudo-true inference; DSGE models; Indirect Inference; Wald tests; Likelihood Ratio tests; robustness;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models

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