Using Estimated Models To Assess Nominal And Real Rigidities In The United Kingdom
Source: Bank of England
This paper aims to contribute to the 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. The authors 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. They find that both models can explain the data reasonably well without relying on undue amounts of price and wage stickiness.