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

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.
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https://halshs.archives-ouvertes.fr/halshs-00140624
Contributor : Nicolas Canry <>
Submitted on : Saturday, April 7, 2007 - 2:36:27 PM
Last modification on : Tuesday, April 14, 2020 - 2:31:54 PM
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  • HAL Id : halshs-00140624, version 1

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Nicolas Canry, Julien Fouquau, Sébastien Lechevalier. Price Dynamics in Japan (1981-2001): A Structural
Analysis of Mechanisms in the Goods and Labor
Markets. The Money Macro and Finance (MMF) Research Group, 39th Annual Conference, Sep 2007, Birmingham, United Kingdom. ⟨halshs-00140624⟩

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