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Pass-Through of Oil Prices to Japanese Domestic Prices

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  • Etsuro Shioji
  • Taisuke Uchino

Abstract

In this paper, we investigate changes in the impacts of world crude oil prices on domestic prices in Japan. First, we employ a time-varying parameter VAR (TVP-VAR) approach to confirm that the rate of pass-through of oil prices declined, both at the aggregate and sectoral levels, for the period 1980-2000. Second, by utilizing Input-Output Tables, we find that changing cost structure of Japanese firms goes a long way toward explaining this decline. That is, by the year 2000, oil had become a much smaller component of the Japanese production cost structure. We further find that much of this is attributable to changes in relative prices: as oil became cheaper, it became less important in the overall cost structure, and thus pricing behaviors of firms became less responsive to its prices. Substitution effects, namely firms’ shifts toward less oil intensive production, on the other hand, appear to be less important. We also study the period 2000-2007. We find that, although pass-through rates of oil prices increase in many instances, those increases are small in comparison to the drastic resurgence of oil in the cost structure of firms. We present some possible explanations for this finding.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15888.

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Date of creation: Apr 2010
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Publication status: published as Pass-Through of Oil Prices to Japanese Domestic Prices , Etsuro Shioji, Taisuke Uchino. in Commodity Prices and Markets, East Asia Seminar on Economics, Volume 20 , Ito and Rose. 2011
Handle: RePEc:nbr:nberwo:15888

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  1. Jongwanich, Juthathip & Park, Donghyun, 2009. "Inflation in developing Asia," Journal of Asian Economics, Elsevier, Elsevier, vol. 20(5), pages 507-518, September.
  2. Blanchard, Olivier J & Galí, Jordi, 2008. "The Macroeconomic Effects of Oil Shocks: Why are the 2000s so Different from the 1970s?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6631, C.E.P.R. Discussion Papers.
  3. Kilian, Lutz, 2007. "The Economic Effects of Energy Price Shocks," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6559, C.E.P.R. Discussion Papers.
  4. Alan S. Blinder & Jeremy B. Rudd, 2008. "The Supply-Shock Explanation of the Great Stagflation Revisited," NBER Working Papers 14563, National Bureau of Economic Research, Inc.
  5. Shiratsuka, Shigenori, 1999. "Measurement Errors in the Japanese Consumer Price Index," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, Institute for Monetary and Economic Studies, Bank of Japan, vol. 17(3), pages 69-102, December.
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Cited by:
  1. Srinivasan, Sunderasan, 2014. "Economic populism, partial deregulation of transport fuels and electoral outcomes in India," Energy Policy, Elsevier, Elsevier, vol. 68(C), pages 465-475.
  2. Roman Horváth & Michal Franta & Marek Rusnák, 2012. "Evaluating Changes in the Monetary Transmission Mechanism in the Czech Republic," Working Papers IES, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies 2012/11, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Apr 2012.
  3. Atsushi Sekine & Takayuki Tsuruga, 2014. "Effects of Commodity Price Shocks on Inflation: A Cross Country Analysis," Discussion papers e-13-006, Graduate School of Economics Project Center, Kyoto University.
  4. Etsuro Shioji, 2012. "The Evolution of the Exchange Rate Pass-Through in Japan:A Re-evaluation Based on Time-Varying Parameter VARs," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, Policy Research Institute, Ministry of Finance Japan, vol. 8(1), pages 67-92, June.

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