State and Time-Dependent Pricing

Philip Bunn; Nicholas Bloom; Craig Menzies; Paul Mizen; Gregory Thwaites; Ivan Yotzov

doi:10.3386/w34666

State and Time-Dependent Pricing

Philip Bunn, Nicholas Bloom, Craig Menzies, Paul Mizen, Gregory Thwaites & Ivan Yotzov

Working Paper 34666

DOI 10.3386/w34666

Issue Date January 2026

We present new evidence on how firms set prices using direct questions from a large, economy-wide survey of UK firms. Since 2023, 54% of firms report setting prices in a state-dependent manner, as opposed to changing prices at fixed intervals. In contrast, 44% of firms used state-dependent pricing in 2019. Smaller firms, those with a higher share of non-labour costs, and those reporting higher subjective uncertainty around sales and prices are more likely to be state-dependent. We then analyse the implications of price-setting behaviour for inflation dynamics. State-dependent firms experienced a sharper increase in price growth over 2022-2023, and also a faster subsequent decline. Using evidence from a randomised survey experiment, firm-level forecast errors, and local projections, we show that prices of state-dependent firms respond faster to cost shocks. The difference between state-dependent and time-dependent firms is furthermore larger for bigger shocks, consistent with theoretical predictions.

The authors would like to thank the Economic and Social Research Council for funding under grant ES/X013707/1. Any views expressed are solely those of the authors and so cannot be taken to represent those of the Bank of England or to state Bank of England policy. This paper should therefore not be reported as representing the views of the Bank of England or members of the Monetary Policy Committee, Financial Policy Committee, or Prudential Regulation Committee. We thank Mishel Ghassibe, Ricardo Reis, and Krishan Shah for their useful comments, as well as participants at the MMF, PSE Macro Days, Applied Macroeconomics in a Changing World, and Understanding Business Conditions, Expectations and Uncertainty conferences. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.

Nicholas Bloom
I worked for McKinsey and company as a management consultant from 2001-2002. I have not received any funding from them after that time.

I am part of the Toulouse Network for Information Technology, which carries out research on IT and productivity. From this network I receive an annual honorarium, which is funded by Microsoft.

I do occasional consulting on management practices for government and policy agencies, like the Canadian Government, the World Bank, the European Union, the British Government, and the European Bank of Reconstruction and Development.

I produced a report in 2008 for the World Economic Forum on management practices in private equity for which I received an honorarium.

I am a paid speaker at corporate events at which I discuss among other things working from home, management practices and policy uncertainty.
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Philip Bunn, Nicholas Bloom, Craig Menzies, Paul Mizen, Gregory Thwaites, and Ivan Yotzov, "State and Time-Dependent Pricing," NBER Working Paper 34666 (2026), https://doi.org/10.3386/w34666.

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