Trade Structure and Transmission of Inflation: Theory and Japanese Experience

36 Pages Posted: 5 Jan 2002 Last revised: 12 Jul 2010

See all articles by Jongmoo Jay Choi

Jongmoo Jay Choi

Temple University - Fox School of Business and Management

Jongmoo Jay Choi

Temple University; National Bureau of Economic Research (NBER); Temple University - International Business

M. Ishaq Nadiri

New York University (NYU) - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: June 1982

Abstract

The international price linkage in a single commodity model can be explained trivially by the law of one price or the quantity theory of money. In this paper, we formulate a simple sectoral, general equilibrium model with money. The transmission of price pressures from the world market to nontradable sectors of a domestic economy depends on industry structure, and the size of the direct price substitution effect and the indirect money and income effect through the balance of payments. The structural model is then empirically implemented for Japan, 1956-77. Various dynamic simulations conducted show both the overall magnitude of imported inflation and the relative importance of three major channels of transmission (price, money and income) in Japanese inflation during the period covered. These results imply that closing of one channel of transmission such as the monetary channel by a completely sterilizing monetary policy does not insulate the domestic economy from foreign price disturbances.

Suggested Citation

Choi, Jongmoo Jay and Choi, Jongmoo Jay and Nadiri, M. Ishaq, Trade Structure and Transmission of Inflation: Theory and Japanese Experience (June 1982). NBER Working Paper No. w0923. Available at SSRN: https://ssrn.com/abstract=226913

Jongmoo Jay Choi (Contact Author)

Temple University - Fox School of Business and Management

Jongmoo Jay Choi (Contact Author)

Temple University ( email )

Fox School of Business
Temple University
Philadelphia, PA 19122
United States
215-204-5084 (Phone)
215-204-1697 (Fax)

HOME PAGE: http://astro.temple.edu/~jjchoi

National Bureau of Economic Research (NBER)

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Temple University - International Business ( email )

Philadelphia, PA 19122
United States

M. Ishaq Nadiri

New York University (NYU) - Department of Economics ( email )

269 Mercer Street, 7th Floor
New York, NY 10011
United States
212-998-8968 (Phone)
212-995-4013 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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