Naohisa Hirakata

Import Penetration and Consumer Prices

This paper shows that changes in international competitiveness played a significant role in creating the deflationary pressure in Japan from 1980 to 2001. Applying Blanchard and Quahs (1989) SVAR technique to Dornbusch, Fischer, and Samuelsons (1977) classical comparative advantage model, we break down Japans inflation rate of the consumer prices into three kinds of structural shocks: comparative advantage shocks, global productivity shocks, and cyclical demand shocks. The breakdown results tell us that the Japanese economy had been exposed to severe international competition since 1994, especially from the Asian economies. Japans loss of international competitiveness had exerted continuous downward pressure on the consumer prices and deflationary pressure strengthened significantly at the very end of the 20th century.

Emerging Economies' Supply Shocks and Japan's Price Deflation: International Transmissions in a Three-Country DSGE Model

This paper examines the international transmission effects that a positive supply shock in emerging economies may have on inflation in developed economies. A three-country dynamic stochastic general equilibrium (DSGE) model is constructed to analyze the impact of a supply shock in an emerging economy, the Peoples Republic of China (PRC), on inflation rates in two developed economies, Japan and the United States (US). The assumed asymmetric trade structures among the three countries and the PRCs choice of exchange rate regime appear to influence the international transmission of a supply shock in the PRC. Specifically, Japan is under a greater deflationary pressure than the US because of its vertical trade specialization vis-a-vis the PRC and the PRCs US-dollar-pegged regime. This outcome suggests that, even though Japan and the US may face common positive supply shocks from emerging economies, the deflationary impact of the shock is greater for Japan.