Interindustry Linkages of Prices: Analysis of Japan's Deflation

35 Pages Posted: 16 Feb 2018 Last revised: 22 Feb 2018

See all articles by Yuichi Kichikawa

Yuichi Kichikawa

Niigata University

Hiroshi Iyetomi

Niigata University

Hideaki Aoyama

RIKEN iTHEMS; Research Institute for Economy, Industry and Trade (RIETI)

Yoshi Fujiwara

University of Hyogo - Graduate School of Simulation Studies

Hiroshi Yoshikawa

University of Tokyo - Faculty of Economics

Date Written: February 6, 2018

Abstract

Interactions of micro prices with leads and lags play significant role in explaining the behavior of aggregate price index. We present a new method of exploring the nature of such interactions of micro prices. For Japan's data, we identify two macro shocks, one external and the other domestic, to drive dynamics of prices, but find that irrespective of the sources of shocks, there exists robust flow of changes of domestic prices from upstream to downstream. Prices change in clusters. We identify such clusters. Our analysis suggests that inertia arising from input/output linkages in production explains the behavior of aggregate prices.

Keywords: CPI, Sticky Prices, Interindustry Linkages, Cluster, PCA

JEL Classification: E31, E32, C40

Suggested Citation

Kichikawa, Yuichi and Iyetomi, Hiroshi and Aoyama, Hideaki and Fujiwara, Yoshi and Yoshikawa, Hiroshi, Interindustry Linkages of Prices: Analysis of Japan's Deflation (February 6, 2018). Available at SSRN: https://ssrn.com/abstract=3118735 or http://dx.doi.org/10.2139/ssrn.3118735

Yuichi Kichikawa

Niigata University ( email )

8050 Ikarashi 2 Nocho Nishi Ward
Niigata Prefecture
Niigata, 950-218
Japan

Hiroshi Iyetomi

Niigata University ( email )

8050 Ikarashi-2-cho
Nishi-ku
Niigata, 9502181
Japan

Hideaki Aoyama (Contact Author)

RIKEN iTHEMS ( email )

Wako, Saitama 351-0198
Japan
+81-9019011954 (Phone)

Research Institute for Economy, Industry and Trade (RIETI) ( email )

1-3-1 Kasumigaseki
Chiyoda-ku
Tokyo 100-8901
Japan

Yoshi Fujiwara

University of Hyogo - Graduate School of Simulation Studies ( email )

7-1-28 Minato-jima, Minami-machi
Chuo-ku
Kobe, Hyogo 650-0047
Japan

Hiroshi Yoshikawa

University of Tokyo - Faculty of Economics ( email )

7-3-1 Hongo, Bunkyo-ku
Tokyo 113-0033
Japan

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