We use the method of indirect inference to test a full open economy model of the UK that has been in forecasting use for three decades. The test establishes, using a Wald statistic, whether the parameters of a time-series representation estimated on the actual data lie within some confidence...

This paper establishes the ability of a Real Business Cycle model to account for real exchange rate behaviour, using UK data. We show that a productivity simulation is capable of explaining initial real appreciation with subsequent depreciation to a lower steady state. The model is tested by the...

We set up two rival Computable General Equilibrium (CGE) models of world trade, one based on classical theories of comparative advantage, the other based on recent gravity theories. We have tested them by indirect inference on the time-series of trade facts for five major countries or country...

We carry out an indirect inference test of two versions of a computable general equilibrium (CGE) model of world trade. One of these, the 'classical' model,is well-known as the Heckscher-Ohlin-Samuelson model of world trade, in which countries trade homogeneous products in world markets and...

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...

We examine the empirical evidence bearing on whether UK trade is governed by a Classical model or by a Gravity model, using annual data from 1965 to 2015 and the method of Indirect Inference which has very large power in this application. The Gravity model here differs from the Classical model...

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...

A Real Business Cycle model of the UK is developed to account for the behaviour of UK nonstationary macro data. The model is tested by the method of indirect inference, bootstrapping the errors to generate 95% confidence limits for a VECM representation of the data; we find the model can explain...

Using indirect inference based on a VAR we confront US data from 1972 to 2007 with a standard New Keynesian model in which an optimal timeless policy is substituted for a Taylor rule. We find the model explains the data both for the Great Acceleration and the Great Moderation. The implication is...

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...