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State- and time-dependent pricing

Author

Listed:
  • Philip Bunn

    (Bank of England)

  • Nicholas Bloom

    (Stanford University)

  • Craig Menzies

    (Bank of England)

  • Paul Mizen

    (King's College London)

  • Gregory Thwaites

    (University of Nottingham)

  • Ivan Yotzov

    (Bank of England)

Abstract

We present new evidence on how firms set prices using direct questions from a large economy-wide survey of UK firms. Since 2023, 54% of firms report setting prices in a state-dependent manner, as opposed to changing prices at fixed intervals. In contrast, 44% of firms used state-dependent pricing in 2019. Smaller firms, those with a higher share of non-labour costs, and those reporting higher subjective uncertainty around sales and prices are more likely to be state-dependent. We then analyse the implications of price-setting behaviour for inflation dynamics. State-dependent firms experienced a sharper increase in price growth over 2022–23, and also a faster subsequent decline. Using evidence from a randomised survey experiment, firm-level forecast errors and local projections, we show that prices of state-dependent firms respond more strongly to cost shocks. The difference between state-dependent and time-dependent firms is furthermore larger for bigger shocks, consistent with theoretical predictions.

Suggested Citation

  • Philip Bunn & Nicholas Bloom & Craig Menzies & Paul Mizen & Gregory Thwaites & Ivan Yotzov, 2026. "State- and time-dependent pricing," Bank of England Staff Working Paper series 1166, Bank of England.
    • Handle: RePEc:boe:boeewp:023288
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    File URL: https://www.bankofengland.co.uk/-/media/boe/files/working-paper/2026/state-and-time-dependent-pricing.pdf
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    More about this item

    Keywords

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    JEL classification:

    • C83 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Survey Methods; Sampling Methods
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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