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Interindustry linkages of prices—Analysis of Japan’s deflation

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  • Yuichi Kichikawa
  • Hiroshi Iyetomi
  • Hideaki Aoyama
  • Yoshi Fujiwara
  • Hiroshi Yoshikawa

Abstract

The interactions among macroprices with leads and lags play a significant role in explaining the behavior of an aggregate price index. Thus, to understand inflation and deflation, it is essential to explore the mechanism according to which these macroprices interact with each other. On the basis of a new method, we show that, irrespective of the sources of shocks, a robust flow of changes occurs in domestic prices from upstream to downstream. Moreover, we demonstrate that macroprices change in clusters, and we identify these clusters. Firms are not symmetric. Overall, our analysis suggests that the inertia arising from input/output linkages in production explains the behavior of aggregate prices.

Suggested Citation

  • Yuichi Kichikawa & Hiroshi Iyetomi & Hideaki Aoyama & Yoshi Fujiwara & Hiroshi Yoshikawa, 2020. "Interindustry linkages of prices—Analysis of Japan’s deflation," PLOS ONE, Public Library of Science, vol. 15(2), pages 1-26, February.
    • Handle: RePEc:plo:pone00:0228026
    DOI: 10.1371/journal.pone.0228026
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