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What We Can Learn about the Behavior of Firms from the average Monthly Frequency of Price-Changes: An Application to the UK CPI Data

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  • Huw D. 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.

Suggested Citation

  • Huw D. Dixon & Kun Tian, 2013. "What We Can Learn about the Behavior of Firms from the average Monthly Frequency of Price-Changes: An Application to the UK CPI Data," CESifo Working Paper Series 4226, CESifo.
  • Handle: RePEc:ces:ceswps:_4226
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    References listed on IDEAS

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    Cited by:

    1. 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).
    2. 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.
    3. de la Porte Simonsen, Lasse & Petrella, Ivan & Santoro, Emiliano, 2018. "Inflation Dynamics and Price Flexibility in the UK," CEPR Discussion Papers 13027, C.E.P.R. Discussion Papers.
    4. 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.
    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. Petrella, Ivan & Santoro, Emiliano & Simonsen, Lasse P., 2019. "Time-varying Price Flexibility and Inflation Dynamics," EMF Research Papers 28, Economic Modelling and Forecasting Group.
    7. Diego Solórzano & Huw Dixon, 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.

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    More about this item

    Keywords

    price-spell; steady state; duration;
    All these keywords.

    JEL classification:

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

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