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

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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File URL: http://www.rbnz.govt.nz/-/media/ReserveBank/Files/Publications/Discussion%20papers/2010/dp10-05.pdf
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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
Handle: RePEc:nzb:nzbdps:2010/05
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  1. Patrick Fève & Julien Matheron & Jean-Guillaume Sahuc, 2009. "Minimum Distance Estimation and Testing of DSGE Models from Structural VARs," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 71(6), pages 883-894, December.
  2. Edward Nelson, 2000. "UK monetary policy 1972-97: a guide using Taylor rules," Bank of England working papers 120, Bank of England.
  3. Yashiv, Eran, 2005. "Evaluating the Performance of the Search and Matching Model," CEPR Discussion Papers 5363, C.E.P.R. Discussion Papers.
  4. 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.
  5. 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.
  6. Mark Gertler & Luca Sala & Antonella Trigari, 2008. "An Estimated Monetary DSGE Model with Unemployment and Staggered Nominal Wage Bargaining," Working Papers 341, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  7. Charlotta Groth & Jarkko Jääskelä & Paolo Surico, 2006. "Fundamental inflation uncertainty," Bank of England working papers 309, Bank of England.
  8. Altig, David & Christiano, Lawrence & Eichenbaum, Martin & Lindé, Jesper, 2004. "Firm-Specific Capital, Nominal Rigidities and the Business Cycle," Working Paper Series 176, Sveriges Riksbank (Central Bank of Sweden).
  9. Burda, Michael & Wyplosz, Charles, 1994. "Gross worker and job flows in Europe," European Economic Review, Elsevier, vol. 38(6), pages 1287-1315, June.
  10. 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.
  11. 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.
  12. 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.
  13. 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.
  14. 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.
  15. Harrison, Richard & Oomen, Özlem, 2010. "Evaluating and estimating a DSGE model for the United Kingdom," Bank of England working papers 380, Bank of England.
  16. Richard H. Clarida & Jordi Gali & Mark Gertler, 1998. "Monetary policy rules in practice," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
  17. Riccardo DiCecio & Edward Nelson, 2007. "An estimated DSGE model for the United Kingdom," Working Papers 2007-006, Federal Reserve Bank of St. Louis.
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