© 2010 Published by VŠB-TU Ostrava. All rights reserved. ER-CEREI, Volume 13: 207–218 (2010). Comparing the fit of New Keynesian DSGE models Jan ČAPEK, Masaryk University i Abstract The paper is focused on an analysis of model fit of Dynamic Stochastic General Equilibrium (DSGE) models following New Open Economy Macroeconomics (NOEM). Unlike most of the literature on the topic, this paper does not use Bayesian posterior odds ratio to analyze model fit to data; it uses alternative tools instead. In order to compare the results of the alternative tools to the standard posterior odds ratio, this paper uses the findings of Slanicay and Vašíček (2009), who compared model fit to data of several models with the tool Bayesian posterior odds ratio. The goal of the paper is to verify the results of Slanicay and Vašíček’s (2009) model variants with different criteria than posterior odds and to compare the results with findings of their paper. The tools for the analysis are criteria based on root mean squared error (RMSE) and tools from the Global Sensitivity Analysis toolbox. Conclusions of this paper are the following: Habit persistence in consumption is found to be important and price indexation unimportant as in Slanicay and Vašíček (2009). Furthermore, model variants with foreign economy modeled as AR1 processes always perform better than the ones with structurally modeled foreign econ- omy. This finding is in contradiction to the results of Slanicay and Vašíček (2009). Keywords Forecast quality, global Sensitivity Analysis, model fit, Bayesian posterior odds ratio, parameter importance. JEL Classification: C32, C52, C53, E37 i Department of Economics, Faculty of Economics and Administration, Masaryk University, Lipová 507/41a, 602 00 Brno, Czech Republic. capek@econ.muni.cz This work was supported by funding of specific research at ESF MU, project MUNI/A/0943/2009. 1. Introduction Contemporary literature extensively uses open econ- omy Dynamic Stochastic General Equilibrium (DSGE) models to policy evaluation, forecasting, and other methodological issues. Large portion of these models belongs to the New Open Economy Macroe- conomics (NOEM) class of models, which broaden classical approach by including nominal rigidities and market imperfections and derive (macroeconomic) models from microeconomic foundations. 1 Some 1 For a survey on New Open Economy Macroeconomics literature, see Lane (2001). authors call virtually the same extensions to models as following the New Keynesian (NK) paradigm. Despite wide use of NK DSGE models, according to e. g. Justiniano and Preston (2004) and Slanicay and Vašíček (2009), there has been paid little attention to the fit of the model to actual data. Justiniano and Preston (2004) therefore apply Bayesian posterior odds ratio to several models in order to evaluate which model fits data best. 2 Similar approach is followed by Slanicay and Vašíček (2009) but the analysis is 2 Authors use data sets from Australia, Canada and New Zealand.