Price rigidity in the UK

Li, Yang 2023. Price rigidity in the UK. PhD Thesis, Cardiff University. Item availability restricted.

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Abstract

This thesis is an empirical study on UK CPI price quote data (Mar 1988-Dec 2019) provided by the Office for National Statistics. It extends the study by Zhou and Dixon (2018). I follow Dixon and Grimme (2022) to divide price spells into four subsets which are (+, +), (+, -), (-, -), and (-, +) spells. A (+, +) spell is a price spell that started with a price increase then ended with another price increase. The questions that have been answered in this thesis are first how each type of price spell behaves over time? Second, have prices become more flexible since the 2008 financial crisis? Third, what are the determinants of nominal rigidity? I first used the crosssection method developed by Dixon (2012), then I did some non-parametric and semi-parametric analysis (Cox proportional hazard model). Finally, I used panel regression with fixed and random effects to find the determinants of size of price changes. Here are some stylized facts on the UK CPI data: 1: The average price spell in the UK is about 10 months, and (+, +) spells have the longest average duration while (+, -) spells have the shortest average duration. 2: The proportion of (+, +) spells is the biggest, and more than 50% of the spells are (+, +) spells in the services sector. 3: The average frequency of price changes, which is defined as the percentage of price quotes that changed in each month, is about 21.42%. 4: The 12-month spike pattern that was widely seen in previous literature was only found in (+, +) spells. 5: Prices have become more rigid since the 2008 financial crisis. 5: Heterogeneity can be found among the 11 COICOP divisions. 6: Macro factors matter in the price setting process, and it takes about 3 months for them to have significant effects on nominal rigidity. 7: Monthly effects and regional variations are significant. 8: Our model is good in terms of goodness of fit for the goods sector.

Item Type:	Thesis (PhD)
Date Type:	Completion
Status:	Unpublished
Schools:	Business (Including Economics)
Subjects:	H Social Sciences > H Social Sciences (General)
Uncontrolled Keywords:	Nominal Rigidity, Survival Analysis, CPI Microdata, Cross-Sectional Distributions, Panel Data, Kaplan-Meier Estimator, Cox PH Model
Date of First Compliant Deposit:	27 June 2023
Last Modified:	27 Jun 2023 09:41
URI:	https://orca.cardiff.ac.uk/id/eprint/160600

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