Year: 1990
Type: report
Abstract: Relative price changes in Japanese and U.S. aanufacturing are driven by two forces, productiviry growrh which leads to secular changes in coats and exchange rate fluctuations which change relative prices between the two countries.In sectors where productivity growth is high, reductions in costs can neutralize exchange rate appreciations to keep prices competitive with those abroad, at least in the long run, But even in these sectors, exchange rate fluctuations are the dominant influence on relative competitiveness in the short run.Faced with swings in exchange rates, firms adopt defensive measures to defend their export markets.The paper presents estimates of 'pricing to market" elasticities which suggest that firma lower their export prices in domestic currency relative to their domestic prices in order to limit the effects of currency appreciations.There is evidence that firma in both countries pursue such pricing strategies, but pricing to market is more extensive in Japan.In response to a appreciation of the yen, Japanese firma reduce their export prices in yen sharply so as to limit the pass-through of the appreciation into the dollar prices of their exports.
DOI: 10.3386/w3364
Author: Richard Marston
Language: English
Topic: Global trade and economics
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W1544604976