Two Orthogonal Continents? Testing a Two-country DSGE Model of the US and the EU Using Indirect Inference

V.P.M. Le, D. Meenagh, P.A. Minford, M. Wickens

Research output: Contribution to journalArticlepeer-review

Abstract

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 is rejected. However it is accepted for real variables, output and the real exchange rate, suggesting mis-specification lies in monetary relationships. The model highlights a lack of spillovers between the US and the EU.

Original languageEnglish
Pages (from-to)23-44
Number of pages22
JournalOpen Economies Review
Volume21
Issue number1
DOIs
Publication statusPublished - Feb 2010

Bibliographical note

M1 - 1

Keywords

  • Bootstrap
  • Open economy model
  • DSGE
  • VAR
  • New Keynesian
  • New Classical
  • Indirect inference
  • Wald statistic
  • RATIONAL-EXPECTATIONS
  • MONETARY-POLICY
  • RATES

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