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The Determinants of Price Rigidity in the UK: Analysis of the CPI and PPI Microdata and Application to Macrodata Modelling

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  • Peng Zhou
  • Huw Dixon

Abstract

This paper investigates price rigidity in UK consumer and producer markets, by estimating the hazard functions of price changes in microdata which are then used in macrodata modelling. We explore the mechanism of price setting using survival analysis in order to see what factors drive the observed price rigidity. We find significant effects of macroeconomic variables such as inflation and output, which should be purged off before calibrating any macroeconomic models. The microdata findings are then used to estimate and simulate a heterogeneous price setting model (generalised Calvo and Taylor), which improves the performance in matching macrodata persistence.

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  • Peng Zhou & Huw Dixon, 2019. "The Determinants of Price Rigidity in the UK: Analysis of the CPI and PPI Microdata and Application to Macrodata Modelling," Manchester School, University of Manchester, vol. 87(5), pages 640-677, September.
    • Handle: RePEc:bla:manchs:v:87:y:2019:i:5:p:640-677
    DOI: 10.1111/manc.12263
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    More about this item

    JEL classification:

    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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