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On the Evolution of the United Kingdom Price Distributions

Ba Chu, Kim Huynh (), David Jacho-Chávez () and Oleksiy Kryvtsov ()

Staff Working Papers from Bank of Canada

Abstract: We propose a functional principal components method that accounts for stratified random sample weighting and time dependence in the observations to understand the evolution of distributions of monthly micro-level consumer prices for the United Kingdom (UK). We apply the method to publicly available monthly data on individual-good prices collected in retail stores by the UK Office for National Statistics for the construction of the UK Consumer Price Index from March 1996 to September 2015. In addition, we conduct Monte Carlo simulations to demonstrate the effectiveness of our methodology. Our method allows us to visualize the dynamics of the price distribution and uncovers interesting patterns during the sample period. Further, we demonstrate the efficacy of our methodology with an out-of-sample forecasting algorithm that exploits the time dependence of distributions. Our out-of-sample forecast compares favorably with the random walk forecast.

Keywords: Econometric and statistical methods; Inflation and prices (search for similar items in EconPapers)
JEL-codes: C14 C83 E31 E37 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2018
New Economics Papers: this item is included in nep-eur, nep-for and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4) Track citations by RSS feed

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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:18-25

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