Wage Discrepancy Between Tradable and Non-Tradable Sectors and Real Exchange Rates in Japan: Empirical Evidence with Panel Threshold Model

Takao Fujii () and Yoichi Matsubayashi ()
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Takao Fujii: Kobe City University of Foreign Studies
Yoichi Matsubayashi: Graduate School of Economics, Kobe University

No 1821, Discussion Papers from Graduate School of Economics, Kobe University

Abstract: The Balassa-Samuelson hypothesis incorporates two assumptions: PPP and identical wages between tradable and non-tradable sectors. This study focuses on the latter assumption, the validity of which is hardly verified by previous research. Using panel data, we investigate whether the Balassa-Samuelson effect based on the real exchange rate by sectors in Japan and the United States changes depending on the relative wage ratio of manufacturing sectors to non-tradable sector. Based on Hansen's(1999) panel threshold regression model, we show that the wage discrepancy between tradable and non-tradable sectors in Japan is the important factor that changed the trend of real exchange rate in the mid 90's.

Keywords: real exchange rate; panel threshold model; nominal wage (search for similar items in EconPapers)
JEL-codes: F31 F41 J3 (search for similar items in EconPapers)
Date: 2018-05
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