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New insights into price-setting behaviour in the United Kingdom

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  • Greenslade, Jennifer

    ()
    (Bank of England)

  • Parker, Miles

    (Bank of England)

Abstract

It is important to understand how companies set prices, since price-setting behaviour plays a key role in the monetary policy transmission mechanism. Many surveys have been conducted in a range of countries to shed light on this issue by asking companies directly about how they set prices. This paper reviews the results of a new survey of the price-setting behaviour by the Bank of England of around 700 UK firms. In terms of how companies set prices, the survey evidence supported the use of the mark-up over costs form of pricing. Firms reviewed prices more frequently than actually changing them, with the median firm changing price only once per year, but the frequency with which companies changed their prices varied considerably across sectors. Over the past decade a significant number of firms had increased the frequency of price changes. Different factors influenced price rises and price falls. Higher costs – in particular, labour costs and raw materials – were the most important driver behind price rises, whereas lower demand and competitors’ prices were the main factor resulting in price falls. Nearly half of firms changed their prices within three months of an increase in costs or a fall in demand.

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Bibliographic Info

Paper provided by Bank of England in its series Bank of England working papers with number 395.

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Length: 43 pages
Date of creation: 19 Jul 2010
Date of revision:
Handle: RePEc:boe:boeewp:0395

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Keywords: Price-setting; nominal rigidity; survey data;

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References

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  1. Dhyne, Emmanuel & Álvarez, Luis J. & Le Bihan, Hervé & Veronese, Giovanni & Dias, Daniel & Hoffmann, Johannes & Jonker, Nicole & Lünnemann, Patrick & Rumler, Fabio & Vilmunen, Jouko, 2005. "Price setting in the euro area: some stylized facts from individual consumer price data," Working Paper Series, European Central Bank 0524, European Central Bank.
  2. S. Fabiani & M. Druant & I. Hernando & C. Kwapil & B. Landau & C. Loupias & Fernando Martins & T. Mathä & R. Sabbatini & H. Stahl & A. Stokman, 2005. "The Pricing Behaviour of Firms in the Euro Area: New Survey Evidence," Working Papers, Banco de Portugal, Economics and Research Department w200510, Banco de Portugal, Economics and Research Department.
  3. Simon Hall & Mark Walsh & Anthony Yates, 1997. "How do UK companies set prices?," Bank of England working papers, Bank of England 67, Bank of England.
  4. Hall, Simon & Walsh, Mark & Yates, Anthony, 2000. "Are UK Companies' Prices Sticky?," Oxford Economic Papers, Oxford University Press, vol. 52(3), pages 425-46, July.
  5. Macallan, Clare & Millard, Stephen & Parker, Miles, 2008. "The cyclicality of mark-ups and profit margins for the United Kingdom: some new evidence," Bank of England working papers, Bank of England 351, Bank of England.
  6. Apel, Mikael & Friberg, Richard & Hallsten, Kerstin, 2005. "Microfoundations of Macroeconomic Price Adjustment: Survey Evidence from Swedish Firms," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 37(2), pages 313-38, April.
  7. Fabiani, Silvia & Druant, Martine & Hernando, Ignacio & Kwapil, Claudia & Landau, Bettina & Loupias, Claire & Martins, Fernando & Matha, Thomas & Sabbatini, Roberto & Stahl, Harald & Stokman, Ad, 2006. "What Firms' Surveys Tell Us about Price-Setting Behavior in the Euro Area," MPRA Paper 808, University Library of Munich, Germany.
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Blog mentions

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  1. The macroeconomic challenge
    by chris dillow in Stumbling and Mumbling on 2014-02-19 14:07:50
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Cited by:
  1. Philip Bunn & Colin Ellis, 2012. "How do Individual UK Producer Prices Behave?," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 122(558), pages F16-F34, 02.
  2. Carmem Aparecida Feijo & Luiz Fernando Cerqueira, 2013. "Econometric Evidence on the Determinants of the Mark Up of Industrial Brazilian Firms in the 1990s," Economia, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics], ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics], vol. 14(1a), pages . 91_119.
  3. Millard, Stephen & O'Grady, Tom, 2012. "What do sticky and flexible prices tell us?," Bank of England working papers, Bank of England 457, Bank of England.
  4. Millard, Stephen, 2011. "An estimated DSGE model of energy, costs and inflation in the United Kingdom," Bank of England working papers, Bank of England 432, Bank of England.
  5. Jennifer V. Greenslade & Miles Parker, 2012. "New Insights into Price‐Setting Behaviour in the UK: Introduction and Survey Results," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 122(558), pages F1-F15, 02.

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