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Discussion Paper Details

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Title: Two Orthogonal Continents? Testing a Two-country DSGE Model of the US and EU Using Indirect Inference

Author(s): Vo Phuong Mai Le, David Meenagh, Patrick Minford and Michael R. Wickens

Publication Date: July 2009

Keyword(s): Bootstrap, DSGE, indirect inference, New Classical, New Keynesian, Open economy model, VAR and Wald statistic

Programme Area(s): International Macroeconomics

Abstract: We examine a two country model of the EU and the US. Each has a small sector of the labour and product markets in which there is wage/price rigidity, but otherwise enjoys flexible wages and prices with a one quarter information lag. Using a VAR to represent the data, we find the model as a whole is rejected. However it is accepted for real variables, output and the real exchange rate, suggesting mis-specification lies in monetary relationships. The model highlights a lack of spillovers between the US and the EU.

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Bibliographic Reference

Le, V, Meenagh, D, Minford, P and Wickens, M. 2009. 'Two Orthogonal Continents? Testing a Two-country DSGE Model of the US and EU Using Indirect Inference'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=7385