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 David ORCID: https://orcid.org/0000-0002-9875-8965 and Tian, Kun 2017. What we can learn about the behavior of firms from the average monthly frequency of price-changes: An application to the UK CPI data. Oxford Bulletin of Economics and Statistics 79 (6) , pp. 907-932. 10.1111/obes.12173

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Abstract

The monthly frequency of price-changes is a prominent feature of many studies of the CPI micro-data. In this paper, we see what the frequency implies for the behaviour of price-setters in terms of the cross-sectional distribution average of price-spell durations across firms. We derive a 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 construct hypothetical Bernoulli–Calvo distributions from the frequency data which we find can result in similar impulse responses to the estimated hazards when used in the Smets–Wouters (2003) model.

Item Type:	Article
Date Type:	Publication
Status:	Published
Schools:	Business (Including Economics)
Publisher:	Wiley
ISSN:	0305-9049
Date of First Compliant Deposit:	30 November 2016
Date of Acceptance:	1 November 2016
Last Modified:	26 Nov 2024 12:00
URI:	https://orca.cardiff.ac.uk/id/eprint/96509

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