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Two Orthogonal Continents? Testing a Two-country DSGE Model of the US and the EU Using Indirect Inference
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Publication details
| Journal | Open Economies Review |
|---|---|
| Date | Published - Feb 2010 |
| Issue number | 1 |
| Volume | 21 |
| Number of pages | 22 |
| Pages (from-to) | 23-44 |
| Original language | English |
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.
Bibliographical note
M1 - 1
- Bootstrap, Open economy model, DSGE, VAR, New Keynesian, New Classical, Indirect inference, Wald statistic, RATIONAL-EXPECTATIONS, MONETARY-POLICY, RATES
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