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Open Economies Review

, Volume 21, Issue 1, pp 23–44 | Cite as

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

  • Vo Phuong Mai Le
  • David Meenagh
  • Patrick MinfordEmail author
  • Michael Wickens
Research Article

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.

Keywords

Bootstrap Open economy model DSGE VAR New Keynesian New Classical Indirect inference  Wald statistic 

JEL Classification

C12 C32 C52 E1 

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Copyright information

© Springer Science+Business Media, LLC 2009

Authors and Affiliations

  • Vo Phuong Mai Le
    • 1
  • David Meenagh
    • 1
  • Patrick Minford
    • 1
    • 2
    Email author
  • Michael Wickens
    • 1
    • 2
    • 3
  1. 1.Cardiff UniversityCardiffUK
  2. 2.CEPRLondonUK
  3. 3.University of YorkYorkUK

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