IDEAS home Printed from https://ideas.repec.org/a/taf/intecj/v27y2013i2p157-177.html
   My bibliography  Save this article

Why Do Prices Remain Stable in the Bubble and Bust Period?

Author

Listed:
  • Takeshi Kimura

Abstract

In spite of a large swing in real output growth in the bubble and bust period, aggregate prices remained relatively stable in Japan. Empirical results show that such price rigidity can be explained by the customer market model combined with financial constraints. The degree of financial constraints that firms face in the bubble and bust period fluctuates significantly, and the impact of financial positions on firms' prices is counter-cyclical. In booms, liquidity-abundant firms invest in market share by keeping prices down, while in a recession financially constrained firms charge a high price to locked-in customers who remain loyal. Such counter-cyclicality is clearly observed in the pricing behavior of large firms that produce differentiated goods. In contrast, small firms whose product brand is not well established in the market cannot lock in customers, and hence financial constraints do not affect their pricing decisions.

Suggested Citation

  • Takeshi Kimura, 2013. "Why Do Prices Remain Stable in the Bubble and Bust Period?," International Economic Journal, Taylor & Francis Journals, vol. 27(2), pages 157-177, June.
    • Handle: RePEc:taf:intecj:v:27:y:2013:i:2:p:157-177
    DOI: 10.1080/10168737.2012.719918
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/10168737.2012.719918
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/10168737.2012.719918?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Adam S. Posen, 2010. "The Realities and Relevance of Japan’s Great Recession: Neither Ran nor Rashomon," Working Paper Series WP10-7, Peterson Institute for International Economics.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Pierluigi Balduzzi & Emanuele Brancati & Marco Brianti & Fabio Schiantarelli, 2020. "Credit Constraints anf Firms' Decisions: Evidence from the COVID-19 Outbreak Italian Firms’ Expectations and Plans," Boston College Working Papers in Economics 1013, Boston College Department of Economics, revised 07 Oct 2022.
    2. Simon Gilchrist & Raphael Schoenle & Jae Sim & Egon Zakrajšek, 2017. "Inflation Dynamics during the Financial Crisis," American Economic Review, American Economic Association, vol. 107(3), pages 785-823, March.
    3. Alan Finkelstein Shapiro & Andres Gonzalez Gomez & Jessica Roldan-Pena & Victoria Nuguer, 2018. "Price Dynamics and the Financing Structure of Firms in Emerging Economies," 2018 Meeting Papers 339, Society for Economic Dynamics.
    4. Ioana A. Duca & José M. Montero & Marianna Riggi & Roberta Zizza, 2017. "I will survive. Pricing strategies of financially distressed firms," Temi di discussione (Economic working papers) 1106, Bank of Italy, Economic Research and International Relations Area.
    5. José Manuel Montero, 2017. "Pricing decisions under financial frictions: evidence from the wdn survey," Working Papers 1724, Banco de España.
    6. Balduzzi, Pierluigi & Brancati, Emanuele & Brianti, Marco & Schiantarelli, Fabio, 2020. "The Economic Effects of COVID-19 and Credit Constraints: Evidence from Italian Firms' Expectations and Plans," IZA Discussion Papers 13629, Institute of Labor Economics (IZA).
    7. Brianti, Marco, 2021. "Financial Shocks, Uncertainty Shocks, and Monetary Policy Trade-Offs," Working Papers 2021-5, University of Alberta, Department of Economics.
    8. Daisuke Ikeda, 2022. "Monetary Policy, Inflation, and Rational Asset Price Bubbles," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 54(6), pages 1569-1603, September.
    9. Juan Carlos Berganza & Pedro del Río & Fructuoso Borrallo, 2016. "Determinants and implications of low global inflation rates," Occasional Papers 1608, Banco de España.
    10. Kosuke Aoki & Hibiki Ichiue & Tatsushi Okuda, 2019. "Consumers' Price Beliefs, Central Bank Communication, and Inflation Dynamics," Bank of Japan Working Paper Series 19-E-14, Bank of Japan.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Cockshott, Paul & Renaud, Karen, 2016. "Humans, robots and values," Technology in Society, Elsevier, vol. 45(C), pages 19-28.
    2. Richard G. Anderson, 2013. "Japan as a role model?," Economic Synopses, Federal Reserve Bank of St. Louis.
    3. W Max Corden & Sisira Jayasuriya, 2016. "The Japanese macroeconomic mystery," Departmental Working Papers 2016-03, The Australian National University, Arndt-Corden Department of Economics.
    4. Timothy Dixon & Noriko Otsuka & Hirokazu Abe, 2011. "Critical Success Factors in Urban Brownfield Regeneration: An Analysis of ‘Hardcore’ Sites in Manchester and Osaka during the Economic Recession (2009–10)," Environment and Planning A, , vol. 43(4), pages 961-980, April.
    5. William R. Cline & Kyoji Fukao & Tokuo Iwaisako & Kenneth N. Kuttner & Adam S. Posen & Jeffrey J. Schott, . "Lessons from Decades Lost: Economic Challenges and Opportunities Facing Japan and the United States," PIIE Briefings, Peterson Institute for International Economics, number PIIEB14-4, January.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:intecj:v:27:y:2013:i:2:p:157-177. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RIEJ20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.