DP11816 Comparing different data descriptors in Indirect Inference tests on DSGE models
|Author(s):||Patrick Minford, Michael R. Wickens, Yongdeng Xu|
|Publication Date:||April 2021|
|Keyword(s):||Auxiliary models, DGSE model, indirect inference, Simulated Moments Method|
|Programme Areas:||Monetary Economics and Fluctuations|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=11816|
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.