Using Estimated Models to Assess Nominal and Real Rigidities in the United Kingdom
by Güneş Kambera and Stephen Millardb
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.
JEL Codes: E31, E52.
(PDF, 23 pages 397 kb)
a Reserve Bank of New Zealand
b Bank of England and Durham Business School