How Do Individual UK Consumer Prices Behave?
Bank of England
University of Birmingham; Moody's Investors Service
October 31, 2011
Bank of England Working Paper No. 438
This paper examines the behaviour of individual consumer prices in the United Kingdom, and uncovers a number of stylised facts about pricing behaviour. First, on average 19% of prices change each month, although this falls to 15% if sales are excluded. Second, the probability of price changes is not constant over time. Third, goods prices change more frequently than services prices. Fourth, the distribution of price changes is wide, although a significant number of changes are relatively small and close to zero. Fifth, prices that change more frequently tend to do so by less. We find that conventional pricing theories struggle to match these results, particularly the marked heterogeneity, which argues against the use of ‘representative agent’ models.
Number of Pages in PDF File: 40
Keywords: Consumer prices, price-setting behaviour
JEL Classification: E31, D40working papers series
Date posted: November 1, 2011
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