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What lies beneath: what can disaggregated data tell us about the behaviour of prices?

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  • Mumtaz, Haroon

    ()
    (Bank of England)

  • Zabczyk, Pawel

    ()
    (Bank of England)

  • Ellis, Colin

    ()
    (Daiwa Securities SMBC Europe Ltd)

Abstract

This paper uses a factor-augmented vector autoregression technique to examine the role that macroeconomic and sector-specific factors play in UK price fluctuations at the aggregate and disaggregated levels. Macroeconomic factors are less important for disaggregated prices than aggregate ones. There also appears to be significant aggregation bias - the persistence of aggregate inflation series is much higher than the underlying persistence across the range of disaggregated price series. Our results suggest that monetary policy affects relative prices in the short to medium term, and that the degree of competition within industries plays a role in determining pricing behaviour.

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File URL: http://www.bankofengland.co.uk/research/Documents/workingpapers/2009/wp364.pdf
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Bibliographic Info

Paper provided by Bank of England in its series Bank of England working papers with number 364.

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Length: 32 pages
Date of creation: 20 Mar 2009
Date of revision:
Handle: RePEc:boe:boeewp:0364

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Keywords: Inflation persistence; disaggregation; principal components;

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References

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  1. Fabiani, Silvia & Druant, Martine & Hernando, Ignacio & Kwapil, Claudia & Landau, Bettina & Loupias, Claire & Martins, Fernando & Mathä, Thomas Y. & Sabbatini, Roberto & Stahl, Harald & Stokman, Ad C, 2005. "The pricing behaviour of firms in the euro area: new survey evidence," Working Paper Series 0535, European Central Bank.
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  7. Boivin, Jean & Giannoni, Marc & Mihov, Ilian, 2007. "Sticky Prices and Monetary Policy: Evidence from Disaggregated US Data," CEPR Discussion Papers 6101, C.E.P.R. Discussion Papers.
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  14. Ben S. Bernanke & Jean Boivin & Piotr Eliasz, 2004. "Measuring the effects of monetary policy: a factor-augmented vector autoregressive (FAVAR) approach," Finance and Economics Discussion Series 2004-03, Board of Governors of the Federal Reserve System (U.S.).
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Citations

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Cited by:
  1. Bunn, Philip & Ellis, Colin, 2010. "How do individual UK producer prices behave?," Bank of England working papers 394, Bank of England.
  2. Fuhrer, Jeffrey C., 2010. "Inflation Persistence," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 9, pages 423-486 Elsevier.
  3. Kaufmann, Daniel & Lein, Sarah M., 2013. "Sticky prices or rational inattention – What can we learn from sectoral price data?," European Economic Review, Elsevier, vol. 64(C), pages 384-394.
  4. Adolfson, Malin & Lindé, Jesper, 2011. "Parameter Identification in a Estimated New Keynesian Open Economy Model," Working Paper Series 251, Sveriges Riksbank (Central Bank of Sweden).
  5. Ellis, Colin, 2009. "Do supermarket prices change from week to week?," Bank of England working papers 378, Bank of England.
  6. Philip Bunn & Colin Ellis, 2012. "Examining The Behaviour Of Individual UK Consumer Prices," Economic Journal, Royal Economic Society, vol. 122(558), pages F35-F55, 02.

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