Exchange Rate Appreciation and Export Price Competitiveness: Industry-specific real effective exchange rates of Japan, Korea, and China

Author Name SATO Kiyotaka (Yokohama National University) / SHIMIZU Junko (Gakushuin University) / Nagendra SHRESTHA (Yokohama National University) / Shajuan ZHANG (Yokohama National University)
Creation Date/NO. April 2013 13-E-032
Research Project Research on a Currency Basket
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This paper constructs a new data set of the industry-specific real effective exchange rate (REER), based on the producer price indices, of the Japanese yen, Korean won, and Chinese renminbi on a daily basis from 2005 to the present in order to provide a better indicator for the international price competitiveness of the three countries. We show a large difference in the level of REER not only between the countries but also across industries. By conducting factor decomposition analysis of industry-specific REER, it is revealed that a substantial fall in domestic producer prices during the won appreciation period has enhanced Korean firms' export competitiveness compared to Japanese firms, especially in the electrical machinery industry. In contrast, Japanese automobile firms do not lose export competitiveness with respect to their Korean counterparts, due to the relative decline of domestic production costs.

Published: Kiyotaka Sato, Junko Shimizu, Nagendra Shrestha, Shajuan Zhang, 2013. "Industry-specific Real Effective Exchange Rates and Export Price Competitiveness: The Cases of Japan, China, and Korea," Asian Economic Policy Review, Vol. 8(2), pp. 298-321.