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The Decline in the Exchange Rate Pass-Through: Evidence from Japanese Import Prices

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Author Info
Otani, Akira (Institute for Monetary and Econ Studies, Bank of Japan)
Shiratsuka, Shigenori (Institute for Monetary and Econ Studies, Bank of Japan)
Shirota, Toyoichiro (Bank of Japan)

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Abstract

In this paper, we empirically examine the movement of the exchange rate pass-through to the aggregate import prices in Japan from the 1980s through 2001. We demonstrate that the exchange rate pass- through to Japan's import prices fell in the 1990s, and such a decline occurred mainly during the period from the late 1980s to the mid-1990s. In addition, we show that the decline came mainly from declines in the exchange rate pass-through in each product, rather than a shift of import share from raw materials to manufactured goods with a lower exchange rate pass-through. Moreover, the period of the decline in the exchange rate pass-through coincides with the period of the sharp appreciation of the yen and resultant structural changes in the economy and international trade. Although the advance in the globalization of Japanese firms is likely to reduce the exchange rate pass-through to import prices, it should be noted that the decline in the exchange rate pass-through does not necessarily imply that exchange rate fluctuations have become less important in connection with macroeconomic fluctuations.

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Publisher Info
Article provided by Institute for Monetary and Economic Studies, Bank of Japan in its journal Monetary and Economic Studies.

Volume (Year): 21 (2003)
Issue (Month): 3 (October)
Pages: 53-81
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Handle: RePEc:ime:imemes:v:21:y:2003:i:3:p:53-81

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Find related papers by JEL classification:
F31 - International Economics - - International Finance - - - Foreign Exchange
F14 - International Economics - - Trade - - - Country and Industry Studies of Trade

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Betts, Caroline & Devereux, Michael B., 2000. "Exchange rate dynamics in a model of pricing-to-market," Journal of International Economics, Elsevier, vol. 50(1), pages 215-244, February. [Downloadable!] (restricted)
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  3. Froot, Kenneth A & Klemperer, Paul D, 1989. "Exchange Rate Pass-Through When Market Share Matters," American Economic Review, American Economic Association, vol. 79(4), pages 637-54, September. [Downloadable!] (restricted)
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  4. Dixit, Avinash K, 1989. "Hysteresis, Import Penetration, and Exchange Rate Pass-Through," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 205-28, May. [Downloadable!] (restricted)
  5. Shin-ichi Fukuda & Ji Cong, 1994. "On the Choice of Invoice Currency by Japanese Exporters: The PTM Approach," Discussion Paper Series a289, Institute of Economic Research, Hitotsubashi University.
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  6. Rebecca Hellerstein, 2004. "Who bears the cost of a change in the exchange rate? The case of imported beer," Staff Reports 179, Federal Reserve Bank of New York. [Downloadable!]
  7. Philippe Bacchetta & Eric van Wincoop, 2002. "A theory of the currency denomination of international trade," International Finance Discussion Papers 747, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  8. Jose Manuel Campa & Linda S. Goldberg, 2002. "Exchange Rate Pass-Through into Import Prices: A Macro or Micro Phenomenon?," NBER Working Papers 8934, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. Feenstra, Robert C., 1989. "Symmetric pass-through of tariffs and exchange rates under imperfect competition: An empirical test," Journal of International Economics, Elsevier, vol. 27(1-2), pages 25-45, August. [Downloadable!] (restricted)
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  10. Maurice Obstfeld, 2002. "Exchange Rates and Adjustment: Perspectives from the New Open Economy Macroeconomics," NBER Working Papers 9118, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  11. Bacchetta, Philippe & van Wincoop, Eric, 2002. "A Theory of Currency Denomination of International Trade," CEPR Discussion Papers 3120, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  12. Pinelopi Koujianou Goldberg & Michael M. Knetter, 1997. "Goods Prices and Exchange Rates: What Have We Learned?," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1243-1272, September. [Downloadable!] (restricted)
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  13. Otani, Akira, 2002. "Pricing-to-Market (PTM) and the International Monetary Policy Transmission: The "New Open-Economy Macroeconomics" Approach," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 20(3), pages 1-34, October. [Downloadable!]
  14. Sven W. Arndt & J. David Richardson, 1988. "Real-Financial Linkages Among Open Economies," NBER Working Papers 2230, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  15. Marston, Richard C., 1990. "Pricing to market in Japanese manufacturing," Journal of International Economics, Elsevier, vol. 29(3-4), pages 217-236, November. [Downloadable!] (restricted)
  16. Gagnon, Joseph E. & Knetter, Michael M., 1995. "Markup adjustment and exchange rate fluctuations: evidence from panel data on automobile exports," Journal of International Money and Finance, Elsevier, vol. 14(2), pages 289-310, April. [Downloadable!] (restricted)
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  17. Taylor, John B., 2000. "Low inflation, pass-through, and the pricing power of firms," European Economic Review, Elsevier, vol. 44(7), pages 1389-1408, June. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Robert J. Vigfusson & Nathan Sheets & Joseph Gagnon, 2007. "Exchange rate pass-through to export prices: assessing some cross-country evidence," International Finance Discussion Papers 902, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  2. Roberto Álvarez & Patricio Jaramillo & Jorge Selaive, 2008. "Exchange Rate Pass-Through into Import Prices: The Case of Chile," Working Papers Central Bank of Chile 465, Central Bank of Chile. [Downloadable!]
  3. Stephane Dees & Matthias Burgert & Nicolas Parent, 2008. "Import Price Dynamics in Major Advanced Economies and Heterogeneity in Exchange Rate Pass-Through," Working Papers 08-39, Bank of Canada. [Downloadable!]
    Other versions:
  4. Fujii, Eiji, 2004. "Exchange Rate Pass-Through in the Deflationary Japan: How Effective is the Yen's Depreciation for Fighting Deflation?," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  5. Miguel Fuentes, 2007. "Pass-Through to Import Prices: Evidence from Developing Countries," Documentos de Trabajo 320, Instituto de Economía. Pontificia Universidad Católica de Chile.. [Downloadable!]
  6. Frankel, Jeffrey & Parsley, David & Wei, Shang-Jin, 2005. "Slow Passthrough Around the World: A New Import for Developing Countries?," Working Paper Series rwp05-016, Harvard University, John F. Kennedy School of Government. [Downloadable!]
    Other versions:
  7. Oi, Hiroyuki & Otani, Akira & Shirota, Toyoichiro, 2004. "The Choice of Invoice Currency in International Trade: Implications for the Internationalization of the Yen," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 22(1), pages 27-63, March. [Downloadable!]
  8. Christopher Gust & Sylvain Leduc & Robert J. Vigfusson, 2006. "Trade integration, competition, and the decline in exchange-rate pass-through," International Finance Discussion Papers 864, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  9. Hakan Kara & Hande Kucuk Tuger & Umit Ozlale & Burc Tuger & Devrim Yavuz & Eray M. Yucel, 2005. "Exchange Rate Pass-Through in Turkey : Has it Changed and to What Extent?," Working Papers 0504, Research and Monetary Policy Department, Central Bank of the Republic of Turkey. [Downloadable!]
  10. Christopher Gust & Nathan Sheets, 2007. "The adjustment of global external imbalances: does partial exchange rate pass-through to trade prices matter?," International Finance Discussion Papers 850, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
    Other versions:
  11. Stahn, Kerstin, 2009. "Changes in import pricing behaviour: the case of Germany," Discussion Paper Series 1: Economic Studies 2009,14, Deutsche Bundesbank, Research Centre. [Downloadable!]
  12. Frankel, Jeffrey, 2005. "Contractionary Currency Crashes In Developing Countries," Working Paper Series rwp05-017, Harvard University, John F. Kennedy School of Government. [Downloadable!]
    Other versions:
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