Working Paper: NBER ID: w13942
Authors: David Weinstein; Christian Broda
Abstract: Between 1992 and 2002, the Japanese Import Price Index registered a decline of almost 9 percent and Japan entered a period of deflation. We show that much of the correlation between import prices and domestic prices was due to formula biases. Had the IPI been computed using a pure Laspeyres index like the CPI, the IPI would have hardly moved at all. A Laspeyres version of the IPI would have risen 1 percentage point per year faster than the official index. Second we show that Chinese prices did not behave differently from the prices of other importers. Although Chinese prices are substantially lower than the prices of other exporters, they do not exhibit a differential trend. However, we estimate that the typical price per unit quality of a Chinese exporter fell by half between 1992 and 2005. Thus the explosive growth in Chinese exports is attributable to growth in the quality of Chinese exports and the increase in new products being exported by China.
Keywords: No keywords provided
JEL Codes: E31; F1; F12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Chinese exports (F14) | Japanese prices (P22) |
| Formula biases in IPI (C43) | Japanese prices (P22) |
| Quality improvements and new products (L15) | Chinese exports (F14) |
| Chinese exports (F14) | Price per unit quality (L15) |
| New imported varieties (Q17) | Aggregate prices (P22) |
| Chinese imports (F14) | Japanese prices (P22) |