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Measuring Flexible Prices, Flexible Output and Marginal Costs Using Survey Data

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  • Kevin Lee
  • Michael J Mahony
  • Paul Mizen

Abstract

This technical note provides new economic measures of the flexible price level, flexible output level and marginal costs for the UK. Using a straightforward decomposition from first principles this technical note shows that the flexible price level in period t is a weighted average of the period t and t -1 price levels - where the weights are determined by the proportion of firms adjusting their price. Similarly, the flexible output level in period t is a weighted average of the period t and t - 1 output levels - where the weights are determined by the proportion of firms altering their production plans. For the proportion of firms which do not alter their production plans, straightforward calculus shows their change in average costs is proportional to marginal costs. Using a unique dataset (of firm-level survey responses on changes in price and output), this technical note constructs flexible price indices, flexible output indices and marginal cost indices for the UK.

Suggested Citation

  • Kevin Lee & Michael J Mahony & Paul Mizen, 2023. "Measuring Flexible Prices, Flexible Output and Marginal Costs Using Survey Data," Economic Statistics Centre of Excellence (ESCoE) Discussion Papers ESCoE DP-2023-01, Economic Statistics Centre of Excellence (ESCoE).
    • Handle: RePEc:nsr:escoed:escoe-dp-2023-01
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    References listed on IDEAS

    as
    1. Mark Bils & Peter J. Klenow, 2004. "Some Evidence on the Importance of Sticky Prices," Journal of Political Economy, University of Chicago Press, vol. 112(5), pages 947-985, October.
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    More about this item

    Keywords

    flexible prices; flexible output; marginal costs; Calvo staggered pricing;
    All these keywords.

    JEL classification:

    • C80 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - General
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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