Tables 1 and 2 below are drawn from the article by Bunn P., Ellis C., (2012), "Examining the behaviour of individual UK consumer prices", The Economic Journal, 122, 558, F35-F55 (the article is available on Moodle). The aim of the research is to investigate the frequency with which UK consumer prices change. In order to carry out their investigation the researchers analyse the behaviour of individual UK prices using the data that are used in the construction of the UK CPI and using a database of supermarket prices collected from scanner data. Answer the following questions. 1) Why is this research of interest for macroeconomists in general and UK policy makers in particular? 2) Provide an analysis of the evidence emerging from tables 1 and 2. 3) Explain at least two reasons that, according to economic theory, might prevent business from changing consumer prices more frequently. Table 1. Frequency of consumer price changes Price measure Monthly Consumer Price Index (CPI) microdata CPI goods CPI services CPI excluding promotions Weekly supermarket data Excluding fresh products Excluding fresh products and price reversals Sample 1996-2006 ● 1996-2006 1996-2006 1996-2006 February 2005-February 2008 February 2005-February 2008 February 2005-February 2008 Percentage of prices changing 19% a month 24% a month 9% a month 15% a month 60% a week 40% a week 27% a week Implied duration between price changes 5.3 months 4.2 months 11.1 months 6.7 months 1.7 weeks 2.5 weeks 3.7 weeks Notes. Monthly CPI microdata are locally-collected data only. All figures are weighted by sales values. Sources. CPI and Nielsen microdata. Legend: ● CPI excluding promotions: it is a measure of average prices that excludes goods that are subjected to some temporary discount or promotion; Price reversals: they refer to situations where, following a rise or fall in any given price, the subsequent change is an exact reversal to the original price.
Tables 1 and 2 below are drawn from the article by Bunn P., Ellis C., (2012), "Examining the behaviour of individual UK consumer prices", The Economic Journal, 122, 558, F35-F55 (the article is available on Moodle). The aim of the research is to investigate the frequency with which UK consumer prices change. In order to carry out their investigation the researchers analyse the behaviour of individual UK prices using the data that are used in the construction of the UK CPI and using a database of supermarket prices collected from scanner data. Answer the following questions. 1) Why is this research of interest for macroeconomists in general and UK policy makers in particular? 2) Provide an analysis of the evidence emerging from tables 1 and 2. 3) Explain at least two reasons that, according to economic theory, might prevent business from changing consumer prices more frequently. Table 1. Frequency of consumer price changes Price measure Monthly Consumer Price Index (CPI) microdata CPI goods CPI services CPI excluding promotions Weekly supermarket data Excluding fresh products Excluding fresh products and price reversals Sample 1996-2006 ● 1996-2006 1996-2006 1996-2006 February 2005-February 2008 February 2005-February 2008 February 2005-February 2008 Percentage of prices changing 19% a month 24% a month 9% a month 15% a month 60% a week 40% a week 27% a week Implied duration between price changes 5.3 months 4.2 months 11.1 months 6.7 months 1.7 weeks 2.5 weeks 3.7 weeks Notes. Monthly CPI microdata are locally-collected data only. All figures are weighted by sales values. Sources. CPI and Nielsen microdata. Legend: ● CPI excluding promotions: it is a measure of average prices that excludes goods that are subjected to some temporary discount or promotion; Price reversals: they refer to situations where, following a rise or fall in any given price, the subsequent change is an exact reversal to the original price.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Tables 1 and 2 below are drawn from the article by Bunn P., Ellis C., (2012), "Examining the behaviour of
individual UK consumer prices", The Economic Journal, 122, 558, F35-F55 (the article is available on Moodle).
The aim of the research is to investigate the frequency with which UK consumer prices change. In order to carry
out their investigation the researchers analyse the behaviour of individual UK prices using the data that are used
in the construction of the UK CPI and using a database of supermarket prices collected from scanner data.
Answer the following questions.
1) Why is this research of interest for macroeconomists in general and UK policy makers in particular?
2) Provide an analysis of the evidence emerging from tables 1 and 2.
3)
Explain at least two reasons that, according to economic theory, might prevent business from changing
consumer prices more frequently.
Table 1. Frequency of consumer price changes
Price measure
Monthly Consumer Price Index
(CPI) microdata
CPI goods
CPI services
CPI excluding promotions
Weekly supermarket data
Excluding fresh products
Excluding fresh products and
price reversals
1996-2006
February 2005-February 2008
February 2005-February 2008
February 2005-February 2008
Sample
1996-2006
1996-2006
1996-2006
Housing Services
Transport and Travel Services
Communication
Notes. Monthly CPI microdata are locally-collected data only. All figures are weighted by sales values.
Sources. CPI and Nielsen microdata.
Legend:
●
Recreational and Personal Services
Miscellaneous Services
Table 2. Percentage of UK consumer prices that change each month
Food and Non-Alcoholic Beverages
Alcoholic Beverages and Tobacco
Energy Goods
Non-Energy Industrial Goods
0
Percentage of
prices changing
19% a month
CPI excluding promotions: it is a measure of average prices that excludes goods that are subjected to some
temporary discount or promotion;
24% a month
9% a month
15% a month
60% a week
40% a week
27% a week
Price reversals: they refer to situations where, following a rise or fall in any given price, the subsequent change is an
exact reversal to the original price.
10
20
30
Implied duration
between price changes.
5.3 months
%
4.2 months
11.1 months
6.7 months
1.7 weeks
2.5 weeks
3.7 weeks
40
50
W.X
60
70
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