Working Paper: CEPR ID: DP7539
Authors: Vo Phuong Mai Le; Patrick Minford; Michael R. Wickens
Abstract: We review the methods used in many papers to evaluate DSGE models by comparing their simulated moments with data moments. We compare these with the method of Indirect Inference to which they are closely related. We illustrate the comparison with contrasting assessments of a two-country model in two recent papers. We conclude that Indirect Inference is the proper end point of the puzzles methodology.
Keywords: anomaly; bootstrap; dsge; indirect inference; puzzle; useu model; var; wald statistic
JEL Codes: C12; C32; C52; E1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| puzzles methodology (C60) | effectiveness in evaluating macroeconomic models (E17) |
| puzzles methodology (C60) | ability to replicate key economic facts (C59) |
| model predictions (C59) | observed economic behavior (D01) |
| appropriate shocks (E17) | model's simulated values within confidence interval of observed data (C51) |
| model's simulated values within confidence interval of observed data (C51) | model accepted as fitting the data (C52) |
| puzzles methodology fails to rigorously test null hypothesis (C12) | lack of statistical rigor in establishing causal relationships (C90) |
| indirect inference (C36) | more robust testing of models (C52) |