Price Dynamics in Japan (1981-2001): A Structural Analysis of Mechanisms in the Goods and Labor Markets

Institute of Economic Research, Hitotsubashi University, Discussion paper series A No. 493, 2007

40 Pages Posted: 27 Mar 2018

See all articles by Nicolas Canry

Nicolas Canry

Université Paris I Panthéon-Sorbonne - Centre d'Economie de la Sorbonne (CES)

Julien Fouquau

ESCP Business School

Sebastien Lechevalier

Ecole des Hautes Etudes en Sciences Sociales (EHESS)

Date Written: March 22, 2018

Abstract

This paper aims to provide an alternative framework to previous studies of deflation in Japan. We focus on the real dimension of the price dynamics and propose an imperfect competition model, which describes a rent economy, where the formation of prices can be separated into the markup (level of the rent in the goods market) and the unit labor cost (distribution of the rent in the labor market). We use a panel industry dataset to analyze the impact of institutional and structural factors on the heterogeneous price dynamics of 10 manufacturing sectors. Although the evolution of unit labor costs seems to be the driving force of price dynamics in the manufacturing industry, our structural analysis leads to consider the importance of the increasingly competitive environment, as captured by rising import penetration. Along with the decline of bargaining power of the workforce, this is at the origin of the deflationary pressures that characterized the Japanese economy during the Lost Decade.

Suggested Citation

Canry, Nicolas and Fouquau, Julien and Lechevalier, Sebastien, Price Dynamics in Japan (1981-2001): A Structural Analysis of Mechanisms in the Goods and Labor Markets (March 22, 2018). Institute of Economic Research, Hitotsubashi University, Discussion paper series A No. 493, 2007, Available at SSRN: https://ssrn.com/abstract=3146972 or http://dx.doi.org/10.2139/ssrn.3146972

Nicolas Canry

Université Paris I Panthéon-Sorbonne - Centre d'Economie de la Sorbonne (CES) ( email )

106-112 Boulevard de l'hopital
106-112 Boulevard de l'Hôpital
Paris Cedex 13, 75647
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Julien Fouquau

ESCP Business School ( email )

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France

Sebastien Lechevalier (Contact Author)

Ecole des Hautes Etudes en Sciences Sociales (EHESS) ( email )

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Paris, 75006
France

HOME PAGE: http://https://sebastienlechevalier.wordpress.com/

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