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What We can Learn About the Behaviour of Firms from the Average Monthly Frequency of Price-Changes: An Application to the UK CPI Data

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  • Huw David Dixon
  • Kun Tian

Abstract

In this paper, we see how much the average monthly frequency of price changes ties down the behavior of firms in steady-state in terms of the average length of price-spells across firms. We use the UK CPI data at the aggregate and sectoral level and find that the actual mean is about twice the theoretical minimum consistent with the observed frequency. We estimate the distribution using the hazard function and find that, despite the micro differences, the artificial Calvo distributions generated using the sectoral frequencies result in very similar impulse responses to the estimated hazards when used in the Smets-Wouters (2003) model.
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Suggested Citation

  • Huw David Dixon & Kun Tian, 2017. "What We can Learn About the Behaviour of Firms from the Average Monthly Frequency of Price-Changes: An Application to the UK CPI Data," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 79(6), pages 907-932, December.
    • Handle: RePEc:bla:obuest:v:79:y:2017:i:6:p:907-932
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    File URL: http://hdl.handle.net/10.1111/obes.12173
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    Cited by:

    1. Dixon, Huw D. & Grimme, Christian, 2022. "State-dependent or time-dependent pricing? New evidence from a monthly firm-level survey: 1980–2017," European Economic Review, Elsevier, vol. 150(C).
    2. Hobijn, Bart & Nechio, Fernanda & Shapiro, Adam Hale, 2021. "Using Brexit to identify the nature of price rigidities," Journal of International Economics, Elsevier, vol. 130(C).
    3. Huw Dixon & Jeremy Franklin & Stephen Millard, 2023. "Sectoral Shocks and Monetary Policy in the United Kingdom," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 85(4), pages 805-829, August.
    4. Huw Dixon & Kul Luintel & Kun Tian, 2020. "The Impact of the 2008 Crisis on UK Prices: What We Can Learn from the CPI Microdata," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 82(6), pages 1322-1341, December.
    5. Huw D. Dixon & Christian Grimme, 2019. "State-Dependent or Time-Dependent Pricing? New Evidence from a Monthly Firm-Level Survey: 1980-2017," CESifo Working Paper Series 7842, CESifo.
    6. Amlendu Dubey & Juhi Lohani, 2022. "Inflation targeting and price behaviour: evidence from India," Indian Economic Review, Springer, vol. 57(2), pages 265-284, December.
    7. Solórzano Diego & Dixon Huw, 2020. "The Relationship Between Nominal Wage and Price Flexibility: New Evidence," Working Papers 2020-20, Banco de México.
    8. Dixon, Huw & Franklin, Jeremy & Millard, Stephen, 2014. "Sectoral shocks and monetary policy in the United Kingdom," Bank of England working papers 499, Bank of England.
    9. Solórzano Diego, 2023. "Stylized Facts From Prices at Multi-Channel Retailers in Mexico," Working Papers 2023-09, Banco de México.
    10. Erwan Gautier & Hervé Le Bihan, 2018. "Shocks vs Menu Costs: Patterns of Price Rigidity in an Estimated Multi-Sector Menu-Cost Model," 2018 Meeting Papers 248, Society for Economic Dynamics.
    11. Petrella, Ivan & Santoro, Emiliano & Simonsen, Lasse de la Porte, 2018. "Time-varying Price Flexibility and Inflation Dynamics," CEPR Discussion Papers 13027, C.E.P.R. Discussion Papers.
    12. 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.
    13. Dixon, Huw David & Tian, Maoshan, 2022. "The Confidence Interval of Cross-Sectional Distribution of Durations," Cardiff Economics Working Papers E2022/15, Cardiff University, Cardiff Business School, Economics Section.
    14. Maoshan Tian & Huw Dixon, 2022. "The variances of non-parametric estimates of the cross-sectional distribution of durations," Econometric Reviews, Taylor & Francis Journals, vol. 41(10), pages 1243-1264, November.
    15. Dixon, Huw & Seaton, Jonathan & Waterson, Michael, 2014. "Price Flexibility In British Supermarkets: Moderation And Recession," The Warwick Economics Research Paper Series (TWERPS) 1041, University of Warwick, Department of Economics.

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    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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