Second-Round Wage-Price Effects of Raw Material Costs: An Empirical Analysis Using a DSGE Model

Ko Adachi and Naoya Kato
Additional contact information
Ko Adachi: Bank of Japan
Naoya Kato: Bank of Japan

No 25-E-10, Bank of Japan Working Paper Series from Bank of Japan

Abstract: This paper empirically examines the second-round effect of raw material price increases using a DSGE model. Specifically, it explores how price increases driven by rising raw material costs spill over into wages, which then feed back into prices. The analysis focuses on Japan and Europe, which share similar structures in terms of raw material inputs. The results show that the first-round effect, which captures the pass-through of rising raw material costs to prices, is slower in Japan than in Europe. On the other hand, the second-round effect through wages is gradual but persistent in both Japan and Europe. Furthermore, during the period of high inflation since 2020, the first-round effect of higher raw material costs was the main driver of inflation in both Japan and Europe, while the second-round effect contributed to the persistence of inflation. The paper also suggests that the recent changes in wage rigidity in Japan may have strengthened the second-round effect.

Keywords: Wages; Prices; Second-Round Effects; DSGE Model (search for similar items in EconPapers)
JEL-codes: E17 E31 J30 (search for similar items in EconPapers)
Date: 2025-09-04
New Economics Papers: this item is included in nep-dge, nep-eur, nep-lma and nep-sea
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.boj.or.jp/en/research/wps_rev/wps_2025/data/wp25e10.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:boj:bojwps:wp25e10

Access Statistics for this paper

More papers in Bank of Japan Working Paper Series from Bank of Japan Contact information at EDIRC.
Bibliographic data for series maintained by Bank of Japan ().