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Price Dynamics in Japan (1981-2001): A Structural Analysis of Mechanisms in the Goods and Labor Markets

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  • Canry, Nicolas
  • Fouquau, Julien
  • Lechevalier, Sébastien

Abstract

This paper aims to provide an alternative framework to previous studies of deflation in Japan. We focus on the real dimension of the price dynamics and propose an imperfect competition model, which describes a rent economy, where the formation of prices can be separated into the markup (level of the rent in the goods market) and the unit labor cost (distribution of the rent in the labor market). We use a panel industry dataset to analyze the impact of institutional and structural factors on the heterogeneous price dynamics of 10 manufacturing sectors. Although the evolution of unit labor costs seems to be the driving force of price dynamics in the manufacturing industry, our structural analysis leads to consider the importance of the increasingly competitive environment, as captured by rising import penetration. Along with the decline of bargaining power of the workforce, this is at the origin of the deflationary pressures that characterized the Japanese economy during the Lost Decade.

Suggested Citation

  • Canry, Nicolas & Fouquau, Julien & Lechevalier, Sébastien, 2007. "Price Dynamics in Japan (1981-2001): A Structural Analysis of Mechanisms in the Goods and Labor Markets," Discussion Paper Series a493, Institute of Economic Research, Hitotsubashi University.
    • Handle: RePEc:hit:hituec:a493
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    References listed on IDEAS

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    Cited by:

    1. Nicolas Canry & Julien Fouquau & Sébastien Lechevalier, 2011. "Sectoral Price Dynamics in Japan: A Threshold Approach," Economics Bulletin, AccessEcon, vol. 31(2), pages 1322-1335.

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    More about this item

    Keywords

    Deflation; Japanese Economy; Wage Bargaining; Markup; Deregulation; Panel Threshold Regression;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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