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State and Time-Dependent Pricing

Author

Listed:
  • Philip Bunn
  • Nicholas Bloom
  • Craig Menzies
  • Paul Mizen
  • Gregory Thwaites
  • Ivan Yotzov

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 2022-2023, 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 faster 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," NBER Working Papers 34666, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:34666
    Note: ME
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    More about this item

    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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