Discussion Paper Details

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Title: Comparing different data descriptors in Indirect Inference tests on DSGE models

Author(s): Patrick Minford, Michael R. Wickens and Yongdeng Xu

Publication Date: April 2021

Keyword(s): Auxiliary models, DGSE model, indirect inference and Simulated Moments Method

Programme Area(s): Monetary Economics and Fluctuations

Abstract: Indirect inference testing can be carried out with a variety of auxiliary models. Asymptotically these different models make no difference. However, in small samples power can differ. We explore small sample power with three different auxiliary models: a VAR, average Impulse Response Functions and Moments. The latter corresponds to the Simulated Moments Method. We find that in a small macro model there is no difference in power. But in a large complex macro model the power with Moments rises more slowly with increasing misspecification than with the other two which remain similar.

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Bibliographic Reference

Minford, P, Wickens, M and Xu, Y. 2021. 'Comparing different data descriptors in Indirect Inference tests on DSGE models'. London, Centre for Economic Policy Research.