What we can learn about the behavior of firms from the average monthly frequency of price-changes: an application to the UK CPI data

Dixon, Huw ORCID: https://orcid.org/0000-0002-9875-8965 and Tian, Kun 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. [Working Paper]. Cardiff Economics Working Papers, Cardiff: Cardiff University.

Preview

PDF - Published Version Download (833kB) | Preview

Abstract

The monthly frequency of price-changes is a prominent feature of many studies of the CPI micro-data. In this paper, we see how much this ties down the behavior of price-setters ("firms") in steady-state in terms of the average length of price-spells across firms. We are able to divide an upper and lower bound for the mean duration of price-spells averaged 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 although the estimated hazard differs significantly from the Calvo distribution, the means and medians are similar. However, despite the micro differences, we find that 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.

Item Type:	Monograph (Working Paper)
Date Type:	Publication
Status:	Published
Schools:	Business (Including Economics)
Subjects:	H Social Sciences > HB Economic Theory
Publisher:	Cardiff University
Date of First Compliant Deposit:	30 March 2016
Last Modified:	28 Oct 2022 10:21
URI:	https://orca.cardiff.ac.uk/id/eprint/77947

Actions (repository staff only)

Edit Item