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Price Dynamics in Japan (1981-2001): A StructuralAnalysis of Mechanisms in the Goods and LaborMarkets

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Author Info
Nicolas Canry () (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I)
Julien Fouquau () (LEO - Laboratoire d'économie d'Orleans - CNRS : UMR6221 - Université d'Orléans)
Sébastien Lechevalier () (CRCCJ - Centre de Recherche Chine, Corée, Japon - CNRS : UMR8173 - Ecole des Hautes Etudes en Sciences Sociales (EHESS))

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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.

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Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00140624_v1.

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Date of creation: 14 Sep 2007
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Publication status: Published - Presented, The Money Macro and Finance (MMF) Research Group, 39th Annual Conference, 2007, Birmingham, United Kingdom
Handle: RePEc:hal:cesptp:halshs-00140624_v1

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Related research
Keywords: Deflation; Japanese Economy; Wage Bargaining; Markup; Deregulation; Panel Threshold Regression;

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  1. Ronald McKinnon & Kenichi Ohno, 2001. "The Foreign Exchange Origins of Japan's Economic Slump and Low Interest Liquidity Trap," The World Economy, Blackwell Publishing, vol. 24(3), pages 279-315, 03. [Downloadable!] (restricted)
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  4. Hans Genberg & Laurent L. Pauwels, 2004. "Wage-Price Dynamics and Deflation in Hong Kong," HEI Working Papers 06-2004, Economics Section, The Graduate Institute of International Studies. [Downloadable!]
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  5. Morrison, C J, 1994. "The Cyclical Nature of Markups in Canadian Manufacturing: A Production Theory Approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 9(3), pages 269-82, July-Sept. [Downloadable!] (restricted)
  6. Olivier Blanchard & Francesco Giavazzi, 2003. "Macroeconomic Effects Of Regulation And Deregulation In Goods And Labor Markets," The Quarterly Journal of Economics, MIT Press, vol. 118(3), pages 879-907, August. [Downloadable!] (restricted)
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  7. Peng Xu, 2004. "Bankruptcy Resolution in Japan: Civil Rehabilitation vs. Corporate Reorganization," Discussion papers 04010, Research Institute of Economy, Trade and Industry (RIETI). [Downloadable!]
  8. Peter C.B. Phillips & Hyungsik R. Moon, 1999. "Linear Regression Limit Theory for Nonstationary Panel Data," Cowles Foundation Discussion Papers 1222, Cowles Foundation, Yale University. [Downloadable!]
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  9. Dobbelaere, Sabien, 2004. "Estimation of price-cost margins and union bargaining power for Belgian manufacturing," International Journal of Industrial Organization, Elsevier, vol. 22(10), pages 1381-1398, December. [Downloadable!] (restricted)
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  11. Lynne Cockerell & Bill Russell, 1995. "Australian Wage and Price Inflation: 1971-1994," RBA Research Discussion Papers rdp9509, Reserve Bank of Australia. [Downloadable!]
  12. Hansen, Bruce E., 1999. "Threshold effects in non-dynamic panels: Estimation, testing, and inference," Journal of Econometrics, Elsevier, vol. 93(2), pages 345-368, December. [Downloadable!] (restricted)
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  13. Hurlin, Christophe, 2006. "Network effects of the productivity of infrastructure in developing countries," Policy Research Working Paper Series 3808, The World Bank. [Downloadable!]
  14. Blanchard, Olivier & Katz, Lawrence F, 1997. "What We Know and Do Not Know about the Natural Rate of Unemployment," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 51-72, Winter. [Downloadable!] (restricted)
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  15. Banerjee, Anindya & Russell, Bill, 2001. "Industry Structure and the Dynamics of Price Adjustment," Applied Economics, Taylor and Francis Journals, vol. 33(15), pages 1889-1901, December. [Downloadable!] (restricted)
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  16. Gary Saxonhouse, 2005. "Good Deflation/Bad Deflation and Japanese Economic Recovery," Hi-Stat Discussion Paper Series d05-104, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
  17. Wilson, Dominic, 2000. "Japan's Slow-Down: Monetary versus Real Explanations," Oxford Review of Economic Policy, Oxford University Press, vol. 16(2), pages 18-33, Summer.
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