PRICE FLEXIBILITY IN JAPAN, 1970-1992 - A STUDY OF PRICE FORMATION

We estimate probability and size of price change conditional upon the deviation of a price from its target level for a large number of indiv idual wholesale and consumer price indices in Japan. We find robust an d strong asymmetry in price adjustments, especially among CPIs. Cross section variations in price responsiveness depend upon characteristics of distribution channels, in particular, efficiency and input measure s of distributive services. Using a simulation model, we also find tha t the macroscopic downward rigidity almost disappears if the size of t he shock is small compared to the target inflation rate. (C) 1998 Else vier Science B.V.