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

Working papers set out research in progress by our staff, with the aim of encouraging comments and debate.
Published on 27 July 2010

Working Paper No. 396
By Gunes Kamber and 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.

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