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An Empirical Study on Price Rigidity

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  • Zhou, Peng

    ()
    (Cardiff Business School)

Abstract

This paper uses unpublished retailer-level microdata underlying UK consumer price indices to investigate price rigidity. Based on the conventional method, little rigidity is found in frequency of price change, since the implied price duration is only 5.5 months. However, it significantly underestimates the true duration (9.3 months) as suggested by cross-sectional method. Results also exhibit conspicuous heterogeneities in rigidity across sectors and shop types but weak difference across regions and time. The overall distribution of duration can be decomposed by sector into a decreasing component and a cyclical component with 4-month cycles. Both time and state dependent features exist in pricing. These findings support New Keynesian theories and enable a better calibration to improve the performances of macroeconomic models.

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Bibliographic Info

Paper provided by Cardiff University, Cardiff Business School, Economics Section in its series Cardiff Economics Working Papers with number E2010/11.

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Length: 32 pages
Date of creation: Oct 2010
Date of revision: Nov 2010
Handle: RePEc:cdf:wpaper:2010/11

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Related research

Keywords: Price Rigidity; Price Duration; Microdata; Cross-Sectional;

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Cited by:
  1. Nathaniel E. Urama & Moses O. Oduh & Emmanuel O. Nwosu & Augustine C. Odo, 2013. "Price Rigidity and Monetary Non-Neutrality in Developing Countries: Evidence from Nigeria," International Journal of Economics and Financial Issues, Econjournals, vol. 3(2), pages 525-536.

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