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Testing DSGE Models by Indirect Inference: a Survey of Recent Findings

We review recent findings in the application of indirect inference to DSGE models. We show that researchers should tailor the power of their test to the model under investigation in order to achieve a balance between high power and finding a robust model; this will involve choosing only a limited nu...

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Bibliographic Details
Published in:Open economies review 2019-07, Vol.30 (3), p.593-620
Main Authors: Meenagh, David, Minford, Patrick, Wickens, Michael, Xu, Yongdeng
Format: Article
Language:English
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Summary:We review recent findings in the application of indirect inference to DSGE models. We show that researchers should tailor the power of their test to the model under investigation in order to achieve a balance between high power and finding a robust model; this will involve choosing only a limited number of variables on whose behaviour they should focus. Also recent work reveals that it makes little difference which these variables are or how their behaviour is measured whether via a VAR, IRFs or moments. We also review identification issues, how to test part of a model and whether alternative evaluation methods such as forecasting or likelihood ratio tests are potentially helpful.
ISSN:0923-7992
1573-708X
DOI:10.1007/s11079-019-09526-w