What Lies Beneath: What Can Disaggregated Data Tell Us about the Behaviour of Prices?

32 Pages Posted: 21 Mar 2009 Last revised: 24 Dec 2009

Haroon Mumtaz

University of London - School of Sciences

Pawel Zabczyk

CCBS, Bank of England

Colin Ellis

University of Birmingham

Date Written: March 20, 2009

Abstract

This paper uses a factor-augmented vector autoregression technique to examine the role that macroeconomic and sector-specific factors play in UK price fluctuations at the aggregate and disaggregated levels. Macroeconomic factors are less important for disaggregated prices than aggregate ones. There also appears to be significant aggregation bias - the persistence of aggregate inflation series is much higher than the underlying persistence across the range of disaggregated price series. Our results suggest that monetary policy affects relative prices in the short to medium term, and that the degree of competition within industries plays a role in determining pricing behaviour.

Keywords: Inflation persistence, disaggregation, principal components

JEL Classification: C3, D4, E31, E52

Suggested Citation

Mumtaz, Haroon and Zabczyk, Pawel and Ellis, Colin, What Lies Beneath: What Can Disaggregated Data Tell Us about the Behaviour of Prices? (March 20, 2009). Bank of England Working Paper No. 364. Available at SSRN: https://ssrn.com/abstract=1365818 or http://dx.doi.org/10.2139/ssrn.1365818

Haroon Mumtaz

University of London - School of Sciences ( email )

London, WC1E 7HX
United Kingdom

Pawel Zabczyk

CCBS, Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Colin Ellis (Contact Author)

University of Birmingham ( email )

Economics Department
Birmingham, B15 2TT
United Kingdom

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