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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/research_and_publications/discussion_papers/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
Date of revision:
Handle: RePEc:nzb:nzbdps:2010/05
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  1. Mortensen, Dale T & Pissarides, Christopher A, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 397-415, July.
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  8. 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.
  9. 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.
  10. David Altig & Lawrence Christiano & Martin Eichenbaum & Jesper Linde, 2005. "Online Appendix to "Firm-Specific Capital, Nominal Rigidities and the Business Cycle"," Technical Appendices 09-191, Review of Economic Dynamics.
  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. Charlotta Groth & Jarkko Jääskelä & Paolo Surico, 2006. "Fundamental inflation uncertainty," Bank of England working papers 309, Bank of England.
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  14. Nelson, Edward, 2001. "UK Monetary Policy 1972-97: A Guide Using Taylor Rules," CEPR Discussion Papers 2931, C.E.P.R. Discussion Papers.
  15. 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.
  16. Richard 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.
  18. 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.
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