UK monetary policy in an estimated DSGE model with financial frictions

This paper develops a dual-state monetary DSGE model that accommodates refined financial accelerator to analyze UK policy. Unconventional policy (QE) is interpreted as expanding the central bank’s purchases of bonds using M0 offset disruptions at ZLB. Within collateral-augmented costly state verification framework, enters cheapest collateral and reduces cost credit. The tested estimated indirect inference found fit data for key variables over 1993–2016. We find while shocks are significant, it productivity had slowed down recovery 2009–2012. Alternative regimes evaluated compared.