Working Paper: NBER ID: w2878
Authors: William H. Branson; Richard C. Marston
Abstract: This paper investigates the importance of markup behavior in Japanese manufacturing. According to the evidence presented, Japanese firms have varied the markups of prices over marginal costs in order to limit the effects of exchange rate changes on output. This behavior is quite different from that found in U.S. manufacturing where output and employment have borne the main impact of recent exchange rate changes. The paper examines markups in nine sectors of manufacturing which are major producers of exports. In all nine sectors, Japanese prices prove to be highly sensitive to foreign prices and exchange rates as well as to more traditional demand and supply variables. The paper shows that variable markups rather than high price elasticities account for this price behavior, since output is relatively insensitive to prices or exchange rates.
Keywords: markup behavior; exchange rates; Japanese manufacturing; price adjustment
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Markup adjustments (Y60) | Output (Y10) |
| Yen appreciation (F31) | Markup reduction (Y60) |
| Markup reduction (Y60) | Export prices (P22) |
| Foreign prices (P22) | Markup behavior (Y60) |
| Exchange rates (F31) | Output sensitivity (C67) |