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Wage Discrepancy Between Tradable and Non-Tradable Sectors and Real Exchange Rates in Japan: Empirical Evidence with Panel Threshold Model

Author

Listed:
  • Takao Fujii

    (Kobe City University of Foreign Studies)

  • Yoichi Matsubayashi

    (Graduate School of Economics, Kobe University)

Abstract

The Balassa-Samuelson hypothesis incorporates two assumptions: PPP and identical wages between tradable and non-tradable sectors. This study focuses on the latter assumption, the validity of which is hardly verified by previous research. Using panel data, we investigate whether the Balassa-Samuelson effect based on the real exchange rate by sectors in Japan and the United States changes depending on the relative wage ratio of manufacturing sectors to non-tradable sector. Based on Hansen's(1999) panel threshold regression model, we show that the wage discrepancy between tradable and non-tradable sectors in Japan is the important factor that changed the trend of real exchange rate in the mid 90's.

Suggested Citation

  • Takao Fujii & Yoichi Matsubayashi, 2018. "Wage Discrepancy Between Tradable and Non-Tradable Sectors and Real Exchange Rates in Japan: Empirical Evidence with Panel Threshold Model," Discussion Papers 1821, Graduate School of Economics, Kobe University.
    • Handle: RePEc:koe:wpaper:1821
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    More about this item

    Keywords

    real exchange rate; panel threshold model; nominal wage;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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