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Using Estimated Models to Assess Nominal and Real Rigidities in the United Kingdom

  • Günes Kamber

    (Reserve Bank of New Zealand)

  • Stephen Millard

    (Bank of England and Durham Business School)

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 minimizing 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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Article provided by International Journal of Central Banking in its journal International Journal of Central Banking.

Volume (Year): 8 (2012)
Issue (Month): 4 (December)
Pages: 97-119

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Handle: RePEc:ijc:ijcjou:y:2012:q:4:a:4
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  1. Edward Nelson, 2000. "UK monetary policy 1972-97: a guide using Taylor rules," Bank of England working papers 120, Bank of England.
  2. Frank Schorfheide & Marco Del Negro, 2007. "Forming Priors for DSGE Models (and How It Affects the Assessment of Nominal Rigidities)," 2007 Meeting Papers 283, Society for Economic Dynamics.
  3. David Altig & Lawrence Christiano & Martin Eichenbaum & Jesper Linde, 2011. "Firm-Specific Capital, Nominal Rigidities and the Business Cycle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(2), pages 225-247, April.
  4. Burda, Michael C & Wyplosz, Charles, 1993. "Gross Worker and Job Flows in Europe," CEPR Discussion Papers 868, C.E.P.R. Discussion Papers.
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  6. Jeffrey C. Fuhrer, 2000. "Habit Formation in Consumption and Its Implications for Monetary-Policy Models," American Economic Review, American Economic Association, vol. 90(3), pages 367-390, June.
  7. Luca Sala & Antonella Trigari & Mark Gertler, 2007. "An Estimated Monetary DSGE Model with Unemployment and Staggered Nominal Wage Bargaining," 2007 Meeting Papers 353, Society for Economic Dynamics.
  8. Riccardo DiCecio & Edward Nelson, 2007. "An estimated DSGE model for the United Kingdom," Working Papers 2007-006, Federal Reserve Bank of St. Louis.
  9. Charlotta Groth & Jarkko Jääskelä & Paolo Surico, 2006. "Fundamental inflation uncertainty," Bank of England working papers 309, Bank of England.
  10. Fujita, Shigeru & Ramey, Garey, 2005. "The Dynamic Beveridge Curve," University of California at San Diego, Economics Working Paper Series qt4m04n09h, Department of Economics, UC San Diego.
  11. Jennifer V. Greenslade & Miles Parker, 2012. "New Insights into Price‐Setting Behaviour in the UK: Introduction and Survey Results," Economic Journal, Royal Economic Society, vol. 122(558), pages F1-F15, 02.
  12. Yashiv, Eran, 2006. "Evaluating the performance of the search and matching model," European Economic Review, Elsevier, vol. 50(4), pages 909-936, May.
  13. Richard Clarida & Jordi Gali & Mark Gertler, 1998. "Monetary policy rules in practice," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
  14. Dale T. Mortensen & Christopher A. Pissarides, 1993. "Job Creation and Job Destruction in the Theory of Unemployment," CEP Discussion Papers dp0110, Centre for Economic Performance, LSE.
  15. Julio Rotemberg & Michael Woodford, 1997. "An Optimization-Based Econometric Framework for the Evaluation of Monetary Policy," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 297-361 National Bureau of Economic Research, Inc.
  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 351, Bank of England.
  17. Harrison, Richard & Oomen, Özlem, 2010. "Evaluating and estimating a DSGE model for the United Kingdom," Bank of England working papers 380, Bank of England.
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