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Price Behavior in Japanese and U.S. Manufacturing

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  • Richard C. Marston

Abstract

Relative price changes in Japanese and U.S. manufacturing are driven by two forces, productiviry growth which leads to secular changes in costs and exchange rate fluctuations which change relative prices between the two countries. In sectors where productivity growth is high, reductions in costs can neutralize exchange rate appreciations to keep prices competitive with those abroad, at least in the long run, But even in these sectors, exchange rate fluctuations are the dominant influence on relative competitiveness in the short run. Faced with swings in exchange rates, firms adopt defensive measures to defend their export markets. The paper presents estimates of "pricing to market" elasticities which suggest that firms lower their export prices in domestic currency relative to their domestic prices in order to limit the effects of currency appreciations. There is evidence that firms in both countries pursue such pricing strategies, but pricing to market is more extensive in Japan. In response to a appreciation of the yen, Japanese firms reduce their export prices in yen sharply so as to limit the pass-through of the appreciation into the dollar prices of their exports.

Suggested Citation

  • Richard C. Marston, 1990. "Price Behavior in Japanese and U.S. Manufacturing," NBER Working Papers 3364, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:3364
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    References listed on IDEAS

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    Cited by:

    1. Paul J.J. Welfens, 2009. "Innovationen und Transatlantische Bankenkrise: Eine ordnungspolitische Analyse," EIIW Discussion paper disbei171, Universitätsbibliothek Wuppertal, University Library.
    2. Paul Welfens, 2012. "Marshall-Lerner condition and economic globalization," International Economics and Economic Policy, Springer, vol. 9(2), pages 191-207, June.
    3. Cabral, Luis M. B. & Mello, Antonio S., 1997. "Exchange rate expectations and market shares," Economics Letters, Elsevier, vol. 55(1), pages 61-67, August.
    4. Takatoshi Ito, 1994. "On Recent Movements of Japanese Current Accounts and Capital Flows," NBER Chapters, in: Macroeconomic Linkage: Savings, Exchange Rates, and Capital Flows, pages 31-52, National Bureau of Economic Research, Inc.
    5. Melvyn Fuss & Steven Murphy & Leonard Waverman, 1992. "The State of the North American and Japanese Motor Vehicle Industries: A Partially Calibrated Model to Examine the Impacts of Trade Policy Changes," NBER Working Papers 4225, National Bureau of Economic Research, Inc.

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