Micro Price Dynamics During Japan's Lost Decades

We study micro price dynamics and their macroeconomic implications using daily scanner data from 1988 to 2013. We provide five facts. First, posted prices in Japan are ten times as flexible as those in the U.S. scanner data. Second, regular prices are almost as flexible as those in the U.S. and Euro area. Third, the heterogeneity of frequency and size of price change across products is sizable and maintained throughout the sample period. Fourth, during Japan's lost decades, temporary sales have played an increasingly important role in households' consumption expenditure. Fifth, the frequency of upward regular price revisions and the frequency of sales are significantly correlated with the macroeconomic environment in particular indicators associated with a labor market while other components of price changes are not. JEL codes: E3, E31, E5 * Nao Sudo, Bank of Japan, 2-1-1 Nihonbashi, Hongoku-cho, Chuo-ku, Tokyo 103, Japan. [email protected]. Kozo Ueda, School of Political Science and Economics, Waseda University, 1-6-1 Nishi-Waseda Shinjuku-ku, Tokyo 169-8050, Japan. [email protected]. Kota Watanabe, Chuo University, [email protected]. The authors thank the Editors of the Asian Economic Policy Review (AEPR), Tsutomu Watanabe, Kosuke Aoki, Tack Yun, and conference and seminar participants at AEPR, CIGS and Waseda University for useful comments. The views in this paper are those of the authors and do not necessarily reflect the views of the Bank of Japan, the Federal Reserve Bank of Dallas or the Federal Reserve System.