Generalized Taylor and Generalized Calvo price and wage-setting: micro evidence with macro implication
- Hervé Le Bihan, Huw Dixonyand, +5 authors Stéphane Moyen
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.