Measuring Flexible Prices, Flexible Output and Marginal Costs Using Survey Data

Kevin Lee (), Michael J Mahony () and Paul Mizen

Economic Statistics Centre of Excellence (ESCoE) Discussion Papers from Economic Statistics Centre of Excellence (ESCoE)

Abstract: This technical note provides new economic measures of the flexible price level, flexible output level and marginal costs for the UK. Using a straightforward decomposition from first principles this technical note shows that the flexible price level in period t is a weighted average of the period t and t -1 price levels - where the weights are determined by the proportion of firms adjusting their price. Similarly, the flexible output level in period t is a weighted average of the period t and t - 1 output levels - where the weights are determined by the proportion of firms altering their production plans. For the proportion of firms which do not alter their production plans, straightforward calculus shows their change in average costs is proportional to marginal costs. Using a unique dataset (of firm-level survey responses on changes in price and output), this technical note constructs flexible price indices, flexible output indices and marginal cost indices for the UK.

Keywords: flexible prices; flexible output; marginal costs; Calvo staggered pricing (search for similar items in EconPapers)
JEL-codes: C80 E31 E32 (search for similar items in EconPapers)
Date: 2023-01
New Economics Papers: this item is included in nep-eff and nep-reg
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