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...

Indirect inference testing can be carried out with a variety of auxiliary models. Asymptotically these different models make no difference. However, the small sample properties can differ. We explore small sample power and estimation bias both with different variable combinations and descriptive...

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...

We evaluate the Smets-Wouters New Keynesian model of the US postwar period, using indirect inference, the bootstrap and a VAR representation of the data. We find that the model is strongly rejected. While an alternative (New Classical) version of the model fares no better, adding limited nominal...

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 ridigity, 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...

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...

We evaluate the Smets–Wouters New Keynesian model of the US postwar period, using indirect inference, the bootstrap and a VAR representation of the data. We find that the model is strongly rejected. While an alternative (New Classical) version of the model fares no better, adding limited...