Date Added: Mar 2010
The authors build a small open economy dynamic stochastic general equilibrium model, featuring many types of nominal and real frictions that have become standard in the literature. In an attempt to put this approach on a more formal basis, they estimate the model in two stages. First, they evaluate a calibrated version of the stochastically singular model. Then, they augment the model with structural shocks motivated by the results of the evaluation stage and estimate the resulting model using UK data using a Bayesian approach. Finally, they reassess the adequacy of this augmented and estimated model in reconciling the dynamics of the model with the data.