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

Güneş Kamber, Stephen Millard

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.
Kamber, Güneş and Stephen Millard (2012). Using estimated models to assess nominal and real rigidities in the United Kingdom, International Journal of Central Banking, Vol. 8(4), Pages 97-119.