Interindustry Linkages of Prices - Analysis of Japan's Deflation

65 Pages Posted: 17 Jun 2019

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: June 7, 2019

Abstract

Interactions of micro prices with leads and lags play significant role in explaining the behavior of aggregate price index. Thus, for understanding inflation and deflation, it is essential to explore the mechanism of interactions of micro prices. Based on a new method, we show that irrespective of the sources of shocks, there exists robust flow of changes of domestic prices from upstream to downstream. Moreover, we demonstrate that micro prices change in clusters, and identify such clusters. Firms are not symmetric. Overall, our analysis suggests that inertia arising from input/output linkages in production explains the behavior of aggregate prices.

Keywords: IPI, PPI, CPI, Sticky prices, 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 (June 7, 2019). Available at SSRN: https://ssrn.com/abstract=3400573 or http://dx.doi.org/10.2139/ssrn.3400573

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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