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Using estimated models to assess nominal and real rigidities in the United Kingdom

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This paper aims to contribute to our understanding of inflation dynamics in the United Kingdom by estimating two dynamic stochastic general equilibrium models and assessing the role of nominal and real rigidities within them. We first obtain an empirical representation of the monetary transmission mechanism in the United Kingdom and then estimate the models by minimising the difference between this representation and its model equivalents. We find that both models can explain the data reasonably well without relying on undue amounts of price and wage stickiness.

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Paper provided by Reserve Bank of New Zealand in its series Reserve Bank of New Zealand Discussion Paper Series with number DP2010/05.

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Length: 42 p
Date of creation: Aug 2010
Date of revision:
Handle: RePEc:nzb:nzbdps:2010/05

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  3. Del Negro, Marco & Schorfheide, Frank, 2008. "Forming priors for DSGE models (and how it affects the assessment of nominal rigidities)," Journal of Monetary Economics, Elsevier, Elsevier, vol. 55(7), pages 1191-1208, October.
  4. David Altig & Lawrence J. Christiano & Martin Eichenbaum & Jesper Linde, 2010. "Firm-specific capital, nominal rigidities and the business cycle," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 990, Board of Governors of the Federal Reserve System (U.S.).
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  12. Julio Rotemberg & Michael Woodford, 1997. "An Optimization-Based Econometric Framework for the Evaluation of Monetary Policy," NBER Chapters, National Bureau of Economic Research, Inc, in: NBER Macroeconomics Annual 1997, Volume 12, pages 297-361 National Bureau of Economic Research, Inc.
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  14. Fève, P. & Matheron, J. & Sahuc, J-G., 2009. "Minimum Distance Estimation and Testing of DSGE Models from Structural VARs," Working papers, Banque de France 245, Banque de France.
  15. Charlotta Groth & Jarkko Jääskelä & Paolo Surico, 2006. "Fundamental inflation uncertainty," Bank of England working papers, Bank of England 309, Bank of England.
  16. Macallan, Clare & Millard, Stephen & Parker, Miles, 2008. "The cyclicality of mark-ups and profit margins for the United Kingdom: some new evidence," Bank of England working papers, Bank of England 351, Bank of England.
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Cited by:
  1. Millard, Stephen, 2011. "An estimated DSGE model of energy, costs and inflation in the United Kingdom," Bank of England working papers, Bank of England 432, Bank of England.
  2. Huw D. Dixon & Hervé Le Bihan, 2010. "Generalized Taylor and Generalized Calvo Price and Wage-Setting: Micro Evidence with Macro Implications," CESifo Working Paper Series, CESifo Group Munich 3119, CESifo Group Munich.
  3. Julien Albertini & Güneş Kamber & Michael Kirker, 2011. "An estimated small open economy model with frictional unemployment," Reserve Bank of New Zealand Discussion Paper Series, Reserve Bank of New Zealand DP2011/04, Reserve Bank of New Zealand.

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