Discussion paper

DP11816 Comparing different data descriptors in Indirect Inference tests on DSGE models

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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Citation

Minford, P and M Wickens (2017), ‘DP11816 Comparing different data descriptors in Indirect Inference tests on DSGE models‘, CEPR Discussion Paper No. 11816. CEPR Press, Paris & London. https://cepr.org/publications/dp11816