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How do Individual UK Producer Prices Behave?

Listed author(s):
  • Philip Bunn
  • Colin Ellis

This paper examines the behaviour of individual producer prices in the United Kingdom, and uncovers a number of stylised facts about pricing behaviour. First, on average 26% of producer prices change each month, although there is considerable heterogeneity between sectors and price changes occur less frequently when measured by the average for individual products. Second, the probability of price changes is not constant over time: prices are most likely to change one, four and twelve months after they were previously set. Third, the distribution of price changes is wide, although a significant number of changes are relatively small and close to zero. Fourth, prices that change more frequently tend to do so by less. And fifth, price changes are much less persistent at the disaggregated level than aggregate inflation data imply. We find that conventional pricing theories struggle to match these results, particularly the marked heterogeneity.

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File URL: http://hdl.handle.net/10.1111/j.1468-0297.2011.02489.x
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Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 122 (2012)
Issue (Month): 558 (02)
Pages: 16-34

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Handle: RePEc:ecj:econjl:v:122:y:2012:i:558:p:f16-f34
DOI: j.1468-0297.2011.02489.x
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References listed on IDEAS
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  1. Jean Imbs & Haroon Mumtaz & Morton O. Ravn & Helene Rey, 2002. "PPP Strikes Back: Aggregation and the Real Exchange Rate," NBER Working Papers 9372, National Bureau of Economic Research, Inc.
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  20. N/A, 1965. "Pricing Behaviour in Manufacturing Industry," National Institute Economic Review, National Institute of Economic and Social Research, vol. 33(1), pages 43-47, August.
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  22. Mumtaz, Haroon & Zabczyk, Pawel & Ellis, Colin, 2009. "What lies beneath: what can disaggregated data tell us about the behaviour of prices?," Bank of England working papers 364, Bank of England.
  23. Altissimo, Filippo & Mojon, Benoit & Zaffaroni, Paolo, 2009. "Can aggregation explain the persistence of inflation?," Journal of Monetary Economics, Elsevier, vol. 56(2), pages 231-241, March.
  24. N. Gregory Mankiw, 1985. "Small Menu Costs and Large Business Cycles: A Macroeconomic Model of Monopoly," The Quarterly Journal of Economics, Oxford University Press, vol. 100(2), pages 529-538.
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