Discussion paper

DP7385 Two Orthogonal Continents? Testing a Two-country DSGE Model of the US and EU Using Indirect Inference

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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Citation

Minford, P, M Wickens, D Meenagh and V Le (2009), ‘DP7385 Two Orthogonal Continents? Testing a Two-country DSGE Model of the US and EU Using Indirect Inference‘, CEPR Discussion Paper No. 7385. CEPR Press, Paris & London. https://cepr.org/publications/dp7385