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The Penn effect within a country: evidence from Japan

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  • Yin-Wong Cheung
  • Eiji Fujii

Abstract

To control for product quality and exchange rate effects, we use Japanese regional data to study the Penn effect—the positive relationship between price and income levels. Comparable with the evidence from international data, the Penn effect is significant in the Japanese prefectural data and driven mainly by the prices of non-tradeables. We draw on studies of productivity and economic density to explain the positive price-income relationship and find that the empirical economic density variables explain the variability of the Japanese prefectural (relative) prices quite well.

Suggested Citation

  • Yin-Wong Cheung & Eiji Fujii, 2014. "The Penn effect within a country: evidence from Japan," Oxford Economic Papers, Oxford University Press, vol. 66(4), pages 1070-1089.
  • Handle: RePEc:oup:oxecpp:v:66:y:2014:i:4:p:1070-1089.
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    Cited by:

    1. Yin-Wong Cheung & Menzie Chinn & Xin Nong, 2016. "Estimating Currency Misalignment Using the Penn Effect: It’s Not as Simple As It Looks," NBER Working Papers 22539, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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