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A limited participation model of the monetary transmission mechanism in the United Kingdom

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Shamik Dhar
Stephen P Millard

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Abstract

In this paper, a model of the UK economy is developed in which monetary growth determines inflation, but in which multiple shocks obscure the relationship between money and inflation. The model is a Dynamic Stochastic General Equilibrium model in which consumers can only participate in financial markets before shocks are observed; in other words, has the feature of 'limited participation'. The particular version of the model used in the paper is similar to other models of this class but with the additional features of costs of adjusting the capital stock. The model is able to capture important features of the monetary transmission mechanism in the United Kingdom, as embodied in the responses of variables to monetary policy shocks.

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Paper provided by Bank of England in its series Bank of England working papers with number 117.

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Handle: RePEc:boe:boeewp:117

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  2. Shamik Dhar & Darren Pain & Ryland Thomas, . "A small structural empirical model of the UK monetary transmission mechanism," Bank of England working papers 113, Bank of England. [Downloadable!]
  3. Blanchard, Olivier Jean & Quah, Danny, 1989. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," American Economic Review, American Economic Association, vol. 79(4), pages 655-73, September. [Downloadable!] (restricted)
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  4. Christiano, Lawrence J & Eichenbaum, Martin, 1995. "Liquidity Effects, Monetary Policy, and the Business Cycle," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 1113-36, November. [Downloadable!] (restricted)
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  5. Ryland Thomas, . "The Demand for M4: A Sectoral Analysis Part 2 The Corporate Sector," Bank of England working papers 62, Bank of England. [Downloadable!]
  6. Fuerst, Timothy S., 1992. "Liquidity, loanable funds, and real activity," Journal of Monetary Economics, Elsevier, vol. 29(1), pages 3-24, February. [Downloadable!] (restricted)
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  17. King, Robert G & Watson, Mark W, 1996. "Money, Prices, Interest Rates and the Business Cycle," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 35-53, February. [Downloadable!] (restricted)
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  22. Lawrence J. Christiano & Martin Eichenbaum, 1992. "Liquidity effects and the monetary transmission mechanism," Staff Report 150, Federal Reserve Bank of Minneapolis. [Downloadable!]
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  23. Christopher A. Sims & Tao A. Zha, 1998. "Does monetary policy generate recessions?," Working Paper 98-12, Federal Reserve Bank of Atlanta. [Downloadable!]
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  27. Christiano, Lawrence J & Eichenbaum, Martin & Evans, Charles, 1996. "The Effects of Monetary Policy Shocks: Evidence from the Flow of Funds," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 16-34, February. [Downloadable!] (restricted)
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  28. Gali, J., 1996. "Technology, Employment, and the Business Cycle: Do Technology Shocks Explain Aggregate Fluctuations?," Working Papers 96-28, C.V. Starr Center for Applied Economics, New York University. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Shamik Dhar & Stephen P Millard, . "How well does a limited participation model of the monetary transmission mechanism match UK data?," Bank of England working papers 118, Bank of England. [Downloadable!]
  2. Shamik Dhar & Darren Pain & Ryland Thomas, . "A small structural empirical model of the UK monetary transmission mechanism," Bank of England working papers 113, Bank of England. [Downloadable!]
  3. Juan Paez-Farrell, 2003. "The New Keynesian Phillips Curve: Some Counterfactual Evidence," Macroeconomics 0312003, EconWPA. [Downloadable!]
  4. Roberto Duncan, 2002. "How Well Does a Monetary Dynamic Equilibrium Model Account for Chilean Data?," Working Papers Central Bank of Chile 190, Central Bank of Chile. [Downloadable!]
  5. Andrew Brigden & Jonathan Thomas, . "What does economic theory tell us about labour market tightness?," Bank of England working papers 185, Bank of England. [Downloadable!]
  6. Scott Hendry & Wai-Ming Ho & Kevin Moran, 2003. "Simple Monetary Policy Rules in an Open-Economy, Limited-Participation Model," Working Papers 03-38, Bank of Canada. [Downloadable!]
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