Price and Wage Setting in Japan: An Empirical Investigation

Abstract

This paper empirically analyzes whether a hypothesis from Aukrust (1977) applies to two phenomena in Japan: wage spillover between internationally competitive industries (exposed sectors) and domestically protected industries (sheltered sectors), and wage- and price- setting in those industries. We find that Aukrust's assumptions hold in the case of Japan, as all three of the cointegrating relations assumed by the Aukrust model are confirmed to exist. We also find the causal relations in Japan are more complex than the relations assumed by Aukrust.