The purpose of this paper is to investigate the empirical performance of the standard New Keynesian dynamic stochastic general equilibrium (DSGE) model in its usual form with full-information rational expectations and compare it with versions assuming inattentiveness- namely sticky information...

We test the standard New Keynesian (NK) Dynamic Stochastic General Equilibrium (DSGE) model under the condition with and without inattentive features, where inattentiveness is modelled in the form of sticky information and imperfect information data revision. All models are tested with the...

Considerable micro-level evidence suggests that price/wage contract durations fluctuate with the state of the economy, particularly inflation; nonetheless, macro-level evidence for this is scarce. We incorporate state-dependent price/wage setting into an open economy DSGE model to investigate...

We use available methods for testing macro models to evaluate a model of China over the period from Deng Xiaoping's reforms up until the crisis period. Bayesian ranking methods are heavily influenced by controversial priors on the degree of price/wage rigidity. When the overall models are tested...

Out-of-sample forecasting tests of DSGE models against time-series benchmarks such as an unrestricted VAR are increasingly used to check a) the specification b) the forecasting capacity of these models. We carry out a Monte Carlo experiment on a widely-used DSGE model to investigate the power of...

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...

In this paper we investigate the role of news shocks in aggregate fluctuations by comparing the empirical performance of models with and without the feature of the news shocks. We found a trivial difference between the two models. That is, the model with news shocks explains the variation as...

A number of studies have found that news shocks account for a large part of the aggregate fluctuations of the main macroeconomic variables.We show that when taking rational expectations into consideration there is a limit on the size of the variance of the news shocks,which has not been...

We review the methods used in many papers to evaluate DSGE models by comparing their simulated moments and other features with data equivalents. We note that they select, scale and characterise the shocks without reference to the data; crucially they fail to use the joint distribution of the...

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...