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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

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.

Suggested Citation

  • Shamik Dhar & Stephen P Millard, 2000. "A limited participation model of the monetary transmission mechanism in the United Kingdom," Bank of England working papers 117, Bank of England.
  • Handle: RePEc:boe:boeewp:117
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    References listed on IDEAS

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    Cited by:

    1. Fernandez-Corugedo, Emilio & McMahon, Michael & Millard, Stephen & Rachel, Lukasz, 2011. "Understanding the macroeconomic effects of working capital in the United Kingdom," Bank of England working papers 422, Bank of England.
    2. Jerzy Pruski & Piotr Szpunar, 2008. "The monetary transmission mechanism in Poland," BIS Papers chapters,in: Bank for International Settlements (ed.), Transmission mechanisms for monetary policy in emerging market economies, volume 35, pages 427-437 Bank for International Settlements.
    3. Juan Paez-Farrell, 2003. "The New Keynesian Phillips Curve: Some Counterfactual Evidence," Macroeconomics 0312003, University Library of Munich, Germany.
    4. Shamik Dhar & Darren Pain & Ryland Thomas, 2000. "A small structural empirical model of the UK monetary transmission mechanism," Bank of England working papers 113, Bank of England.
    5. repec:mbr:jmonec:v:7:y:2012:i:1:p:41-66 is not listed on IDEAS
    6. Andrew Brigden & Jonathan Thomas, 2003. "What does economic theory tell us about labour market tightness?," Bank of England working papers 185, Bank of England.
    7. Shamik Dhar & Stephen P Millard, 2000. "How well does a limited participation model of the monetary transmission mechanism match UK data?," Bank of England working papers 118, Bank of England.
    8. Roberto Duncan, 2005. "How Well Does a Monetary Dynamics Equilibrium Model Account for Chilean Data?," Central Banking, Analysis, and Economic Policies Book Series,in: Rómulo A. Chumacero & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (S (ed.), General Equilibrium Models for the Chilean Economy, edition 1, volume 9, chapter 6, pages 189-220 Central Bank of Chile.
    9. Scott Hendry & Wai-Ming Ho & Kevin Moran, 2003. "Simple Monetary Policy Rules in an Open-Economy, Limited-Participation Model," Staff Working Papers 03-38, Bank of Canada.

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