A common practice in estimating parameters in DSGE models is to nd a set that when simulated gets close to an average of certain data moments; the model s simulated performance for other moments is then compared to the data for these as an informal test of the model. We call this procedure...

Macroeconomic researchers use a variety of estimators to parameterise their models empirically. One such is FIML; another is a form of indirect inference we term "informal" under which data features are "targeted" by the model -i.e. parameters are chosen so that model-simulated features...

With Monte Carlo experiments on models in widespread use we examine the performance of indirect inference (II) tests of DSGE models in small samples. We compare these tests with ones based on direct inference (using the Likelihood Ratio, LR). We find that both tests have power so that a...

Indirect Inference has been found to have much greater power than the Likelihood Ratio in small samples for testing DSGE models. We look at asymptotic and large sample properties of these tests to understand why this might be the case. We find that the power of the LR test is undermined when...

Using Monte Carlo experiments, we examine the performance of indirect inference tests of DSGE models in small samples, using various models in widespread use. We compare these with tests based on direct inference (using the Likelihood Ratio). We find that both tests have power so that a...