The Impact of Price Competitiveness on UK Producer Price Behaviour

Bank of England Working Paper No. 178

29 Pages Posted: 12 Aug 2003

See all articles by Colin Ellis

Colin Ellis

Hult International Business School (London)

Simon Price

Essex Business School; Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA)

Date Written: March 2003

Abstract

Modern open-economy macro models emphasise pricing-to-market behaviour. It is possible that domestic pricing behaviour might be affected by import (competitors') prices, and this is a commonly used variable in empirical work on pricing. But there is theoretical ambiguity and a potential identification problem. Cointegrating techniques are used in an attempt to resolve this, using the most appropriate data set (producer prices). Some evidence is found for the existence of two long-run relationships. The first of these is interpretable as a price mark-up or factor demand relationship, and competitors' prices can be excluded from it. The second equation can be interpreted as a long-run equilibrium price relationship equating domestic and foreign prices. This raises the possibility that single-equation estimates indicating a role for foreign prices in domestic price determination may mislead. However, the results are for producer prices and may not necessarily be extended to other indices.

Keywords: Pricing, competitiveness

JEL Classification: D40, E30

Suggested Citation

Ellis, Colin and Price, Simon G., The Impact of Price Competitiveness on UK Producer Price Behaviour (March 2003). Bank of England Working Paper No. 178, Available at SSRN: https://ssrn.com/abstract=425761 or http://dx.doi.org/10.2139/ssrn.425761

Colin Ellis (Contact Author)

Hult International Business School (London) ( email )

35 Commercial Road
London, E1 1LD
United Kingdom

Simon G. Price

Essex Business School ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA) ( email )

ANU College of Business and Economics
Canberra, Australian Capital Territory 0200
Australia

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