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The Pricing Behaviour of UK Firms

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Author Info
Nicoletta Batini
Brian Jackson
Stephen Nickell

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Abstract

Industrial prices of goods and services are a function of costs of production and of the mark-up that firms apply on those costs. If these prices relate to goods that are traded internationally, they will also be influenced by the price at which those goods are exchanged in international markets. In this paper we present two models of industry pricing behaviour and confront them with UK sectoral data, by estimating the theoretically derived pricing equations using an input-output table at basic prices prepared by Cambridge Econometrics and employment and wage data from the New Earnings Survey. The model based on Bils (1987) and Hall (1988) and which was originally devised for industries within the US manufacturing sector appears to fit the data only marginally better than the one which is based on a structural dynamic pricing equation from Batini, Jackson and Nickell (2000). In both models, sectoral domestic prices depend on marginal costs and sectoral world prices in domestic currency. We find that, in this respect, the weight attached to world prices is significantly correlated with the degree of openness of the industry.

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Paper provided by Monetary Policy Committee Unit, Bank of England in its series Discussion Papers with number 09.

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Date of creation: 2002
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Handle: RePEc:mpc:wpaper:09

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Ian Domowitz & R. Glenn Hubbard & Bruce C. Petersen, 1988. "Market Structure and Cyclical Fluctuations in U.S. Manufacturing," NBER Working Papers 2115, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June. [Downloadable!] (restricted)
  3. Bils, Mark, 1987. "The Cyclical Behavior of Marginal Cost and Price," American Economic Review, American Economic Association, vol. 77(5), pages 838-55, December. [Downloadable!] (restricted)
  4. Waldmann, Robert J, 1991. "Implausible Results or Implausible Data? Anomalies in the Construction of Value-Added Data and Implications for Estimates of Price-Cost Markups," Journal of Political Economy, University of Chicago Press, vol. 99(6), pages 1315-28, December. [Downloadable!] (restricted)
  5. Matthew D. Shapiro, 1987. "Measuring Market Power in U.S. Industry," NBER Working Papers 2212, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Froot, Kenneth A & Klemperer, Paul D, 1989. "Exchange Rate Pass-Through When Market Share Matters," American Economic Review, American Economic Association, vol. 79(4), pages 637-54, September. [Downloadable!] (restricted)
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  7. Evenden, Rhys D. & Williams, Alan W., 2000. "Contestability: The Debate and Industry Policy," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, vol. 30(1), pages 75-90, March. [Downloadable!]
  8. J. Bradford DeLong & Robert J. Waldmann, 1997. "Interpreting procyclical productivity: evidence from a cross-nation cross-industry panel," Economic Review, Federal Reserve Bank of San Francisco, pages 33-52. [Downloadable!]
  9. Rose, Adam & Casler, Stephen, 1996. "Input-Output Structural Decomposition Analysis: A Critical Appraisal," Economic Systems Research, Taylor and Francis Journals, vol. 8(1), pages 33-62, March.
  10. Nicoletta Batini & Brian Jackson & Stephen Nickell, 2000. "Inflation Dynamics and the Labour Share in the UK," Discussion Papers 02, Monetary Policy Committee Unit, Bank of England. [Downloadable!]
  11. Robert E. Hall, 1988. "The Relation Between Price and Marginal Cost in U.S. Industry," NBER Working Papers 1785, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  12. Kollmann, Robert, 1997. "The cyclical behavior of mark ups in U.S. manufacturing and trade: new empirical evidence based on a model of optimal storage," Economics Letters, Elsevier, vol. 57(3), pages 331-337, December. [Downloadable!] (restricted)
  13. Geroski, P A, 1992. "Price Dynamics in UK Manufacturing: A Microeconomic View," Economica, London School of Economics and Political Science, vol. 59(236), pages 403-19, November. [Downloadable!] (restricted)
  14. Barron, John M & Bishop, John & Dunkelberg, William C, 1985. "Employer Search: The Interviewing and Hiring of New Employees," The Review of Economics and Statistics, MIT Press, vol. 67(1), pages 43-52, February. [Downloadable!] (restricted)
  15. Geroski, P A & Hall, S G, 1995. "Price and Quantity Responses to Cost and Demand Shocks," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 57(2), pages 185-204, May.
  16. Dornbusch, Rudiger, 1987. "Exchange Rates and Prices," American Economic Review, American Economic Association, vol. 77(1), pages 93-106, March.
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  17. Hall, Robert E, 1988. "The Relation between Price and Marginal Cost in U.S. Industry," Journal of Political Economy, University of Chicago Press, vol. 96(5), pages 921-47, October. [Downloadable!] (restricted)
  18. Baumol, William J, 1982. "Contestable Markets: An Uprising in the Theory of Industry Structure," American Economic Review, American Economic Association, vol. 72(1), pages 1-15, March.
  19. Jose De Gregorio & Holger C. Wolf & Alberto Giovannini, 1994. "International Evidence on Tradables and Nontradables Inflation," IMF Working Papers 94/33, International Monetary Fund.
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  20. Layard, R. & Nickell, S., . "Layard-Nickell," Instructional Stata datasets for econometrics layardnickell, Boston College Department of Economics. [Downloadable!]
  21. Ghosal, Vivek, 2000. "Product market competition and the industry price-cost markup fluctuations:: role of energy price and monetary changes," International Journal of Industrial Organization, Elsevier, vol. 18(3), pages 415-444, April. [Downloadable!] (restricted)
  22. Haskel, Jonathan & Martin, Christopher & Small, Ian, 1995. "Price, Marginal Cost and the Business Cycle," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 57(1), pages 25-41, February.
  23. Roberts, Mark J. & Supina, Dylan, 1996. "Output price, markups, and producer size," European Economic Review, Elsevier, vol. 40(3-5), pages 909-921, April. [Downloadable!] (restricted)
  24. Mark J. Roberts & Dylan Supina, 1997. "Output Price and Markup Dispersion in Micro Data: The Roles of Producer Heterogeneity and Noise," NBER Working Papers 6075, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Gabriella Legrenzi & Costas Milas, 2005. "Non-linear real exchange rate effects in the UK labour market," Macroeconomics 0507019, EconWPA. [Downloadable!]
    Other versions:
  2. Nicoletta Batini, 2002. "Euro area inflation persistence," Working Paper Series 201, European Central Bank. [Downloadable!]
    Other versions:
  3. Morten Spange & Pawel Zabczyk, . "Sterling implications of a US current account reversal," Bank of England working papers 296, Bank of England. [Downloadable!]
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