Pricing-to-Market (PTM) and the International Monetary Policy Transmission: The "New Open-Economy Macroeconomics" Approach

Empirical analyses of firms' Price-setting behavior show that while the exchange rate pass-through of Japanese firms is low (many Japanese firms adopt pricing-to-market [PTM]), the export prices charged by U.S. firms nearly perfectly reflect foreign exchange rate fluctuations. This paper analyzes how the difference in domestic and foreign firms' price-setting behavior affects the domestic and international transmission of monetary policy by using a model that explicitly incorporates differences in the price-setting behavior of domestic and foreign firms. This model is constructed by adopting the framework of the "hew open-economy macroeconomics" that has been the subject of numerous research papers an recent years. The findings demonstrate that the effects of domestic and foreign monetary policies differ greatly when domestic and foreign firms adopt different price-setting behaviors. This indicates that central banks have to give sufficient attention to firms' price-setting behavior for the implementation of monetary policies. Additionally, model simulations based on Japan and U.S. data show that the external effect of Japanese monetary policy is negligible compared with that of U. S. monetary policy due to the PTM-price-setting behavior of Japanese firms.

Do Currency Regimes Matter in the 21st Century? An Overview

This paper selectively reviews the recent literature on currency regimes in Europe, the Americas, and East Asia. We argue that, given the global interdependence among today's economies, currency regimes should always be evaluated in relation to monetary policy, fiscal policy, structural policies, and the working of financial markets. Thus, currency regimes do matter and are a relevant concern for policymakers.

Distortions in Factor Markets and Structural Adjustments in the Economy

In this paper, we carry out qualitative and quantitative analyses of impacts of factor market distortions on Japan's economic stagnation in the 1990s, thereby showing that resolution of structural impediments is essential for the restoration of sustained economic growth. Distortions in factor markets lead the economy to exhibit inefficient resource allocations, resulting in an inward shift of the nations production possibility frontier and a decline in its attainable output. Our estimation results reveal that the deterioration of distortions in factor markets is attributable to 0.5 percent of the decline in GDP growth (-3.6 percent) after the bursting of the asset price bubble. This confirms that the exacerbation of structural impediments in factor markets is one of the major causes of the prolonged economic stagnation after the bursting of the asset price bubble. Moreover, given that autonomous resolution of factor market distortions through the market mechanism is hardly expected, it is important to take measures to achieve a more efficient allocation of productive resources. Without such measures, monetary and fiscal policies cannot return the economy to a sustainable growth path.

Revisiting the Decline in the Exchange Rate Pass-Through: Further Evidence from Japan's Import Prices

Many empirical studies show common empirical findings that the exchange rate pass-through to import prices in advanced countries declined in the 1990s. Some of those studies, however, draw contrasting conclusions regarding the factors behind the decline. Campa and Goldberg (2002) point out that it comes mainly from the decrease in the import share of primary commodities, such as raw materials and fuels, while Otani, Shiratsuka, and Shirota (2003) make the case that it is mostly attributable to the decline in the exchange rate pass-through in each product category. In this paper, we empirically reexamine the validity of the contrasting hypotheses. Our empirical results demonstrate that the decline in the exchange rate pass-through to Japan's import prices excluding primary commodities is largely attributable to the decreases in the exchange rate pass-through in each product. Our empirical results also suggest the possibility that the declines in the long-term exchange rate pass-through to overall import prices are induced partly by the reduction in the import share of primary commodities. The second point, however, should be taken cautiously, because the precision of the estimates is not high enough to draw a definite conclusion.

The Decline in the Exchange Rate Pass-Through: Evidence from Japanese Import Prices

In this paper, we empirically examine the movement of the exchange rate pass-through to the aggregate import prices in Japan from the 1980s through 2001. We demonstrate that the exchange rate pass- through to Japan's import prices fell in the 1990s, and such a decline occurred mainly during the period from the late 1980s to the mid-1990s. In addition, we show that the decline came mainly from declines in the exchange rate pass-through in each product, rather than a shift of import share from raw materials to manufactured goods with a lower exchange rate pass-through. Moreover, the period of the decline in the exchange rate pass-through coincides with the period of the sharp appreciation of the yen and resultant structural changes in the economy and international trade. Although the advance in the globalization of Japanese firms is likely to reduce the exchange rate pass-through to import prices, it should be noted that the decline in the exchange rate pass-through does not necessarily imply that exchange rate fluctuations have become less important in connection with macroeconomic fluctuations.

Domain Nucleation and Annihilation in Uniformly Magnetized State under Current Pulses in Narrow Ferromagnetic Wires

We investigate the current-driven magnetization dynamics in narrow Permalloy wires by means of Lorentz microscopy and electron holography. Current pulses are found to transform the magnetic structure in the uniformly magnetized state below the Curie temperature. A variety of magnetic states including reversed magnetic domains are randomly obtained in low probability. The dynamics of vortices found in most of observed magnetic states seems to play a key role in triggering the magnetization reversal.Comment: 11 pages, 3 figures, 1 video, to appear in Japanese Journal of Applied Physics (Express Letter