TAIYO YOSHIMI, Ph.D.

This study examines COVID-19 pandemic effects on the stock market and exchange rate of South Korea. With daily data from January 2, 2019 to August 31, 2020, we show that a new infection spike increases stock price index volatility and decreases foreign investors' holdings of domestic stocks, and indirectly leads to the depreciation of the South Korean won. We indicate that investors may have repurchased the South Korean won seven days after an infection spike, thereby slightly increasing its value. We also find that the Bank of Korea's foreign exchange intervention had a short-run effect with a limited impact. The intervention did not have a significant effect on exchange rate volatility.

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Takeshi Hoshikawa and Taiyo Yoshimi

2021

The Developing Economies, Vol.59, Iss.2 (June): 206-222

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This paper examines the determinants of the probability that an exporter chooses between a most-favored nation (MFN) scheme and multiple regional trade agreement (RTA) schemes. We estimate a discrete choice model using transaction-level import data for Thailand in 2014. We find that RTA schemes are more likely to be chosen, given a larger transaction value. Among RTA schemes, the ones with less restrictive rules of origin or lower tariff rates are more likely to be selected. We also conduct simulation analysis to provide quantitative policy implications.

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Kazunobu Hayakawa, Nuttawut Laksanapanyakul and Taiyo Yoshimi

2021

Review of World Economics, Vol.157, Iss.2 (May): 323-346

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We examine how import processing time, which is one of the major obstacles in international trade, affects export patterns at the establishment level. Investigating the effect of such time costs on export patterns reveals how smoothness or sluggishness in operations at one stage affects all stages in an international production network. We first discuss the effects of import processing time on exports, export shipment frequency and exports per shipment from a theoretical standpoint. We employ highly detailed customs data for Thailand from 2007 to 2011 to empirically investigate our theoretical predictions. Import processing time is measured using the difference between the dates on which import shipments arrive in ports and when they were released from the container yard. Results suggest that longer import processing times reduce total exports, particularly as a result of decreasing export frequency; this testifies to the importance of time costs in international trade. It is also revealed that negative effects of import processing time on exports per shipment appear in some specific instances, such as in the case of sea transportation. These results imply that the time spent in one stage has significant effects on both upstream and downstream stages in international production networks.

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Kazunobu Hayakawa, Nuttawut Laksanapanyakul and Taiyo Yoshimi

2019

The World Economy, Vol.42, Iss.7 (July): 2070-2088

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Mega‐regional trade agreements (RTAs) are likely to overlap with other RTAs. When such overlaps occur, firms must choose the tariff rates from multiple RTAs. By employing data on Japan's imports by tariff schemes, we investigate how RTA tariff rates affect firms' decisions on tariff schemes when multiple RTAs exist. Our finding is that RTA utilization rates are higher when tariff rates for that RTA are lower (own effect) and tariff rates for alternative RTAs are higher (cross effect). We also found that the absolute magnitudes of own and cross effects are larger in bilateral and multilateral RTAs, respectively.

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Kazunobu Hayakawa, Shujiro Urata and Taiyo Yoshimi

2019

Review of International Economics, Vol.27, Iss.2 (May): 578-593

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Global and regional integration of financial markets with enhanced international monetary transactions between economic agents increases the exchange rate risk. As this obstacle is growing at speed, market integration should be developed with a view to avoid this risk. In this study, we investigate exchange rate pass-through (ERPT) to examine who takes this risk. Specifically, we estimate the degree of ERPT for individual products by using primary auction price data of used/second-hand construction machinery purchased in Japan and then exported to Thailand for resale. Our empirical analysis of these data at the individual product level enables us to avoid bias in estimating ERPT caused by the use of aggregated data. We find that ERPT is asymmetric and changes in exchange rates are reflected in baht-denominated resale prices only when the baht appreciates against the yen. This indicates that raising resale prices in the destination market is more difficult for the exporters than lowering them, meaning that they can suffer significantly from the exchange rate risk. This paper serves as a reference for a safer financial market by learning how market players are influenced by the exchange rate in a trade market with a unique dataset.

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Kai Po Jenny Law, Eiji Satoh and Taiyo Yoshimi

2018

North American Journal of Economics and Finance, Vol.46 (November): 261-271

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Tariff rates under a free trade agreement (FTA) are not necessarily used in the majority of trade, even among members of an FTA. One of the causes of this phenomenon is the presence of rules of origin (RoOs), which require exporters to comply with specific conditions when utilizing an FTA scheme. To consider how RoOs should be designed so that exporters can more robustly use an FTA scheme, this paper investigates the effect of exchange rates on FTA scheme utilization with a focus on RoOs. Exchange rates affect exporters' compliance with RoOs by changing the so-called value-added ratio, which is defined as [1 – (Price of imported inputs from non-FTA member countries/Export product price)]. Based on a model of pricing-to-market, we propose that an unexpected depreciation of exporters' currency against importers' currency improves the value-added ratio through a rise in the export product's price, which in turn enhances exporters' utilization of an FTA scheme. We also show strong empirical support for the proposition using the detailed product-level data on FTA scheme utilization in Korea's imports from Association of South East Asian Nations (ASEAN) countries.

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Kazunobu Hayakawa, Han-Sung Kim and Taiyo Yoshimi

2017

Journal of International Money and Finance, Vol.75 (July): 93-108

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In this paper, we examine the welfare cost of renouncing monetary policy autonomy in a model that includes labor mobility and pricing-to-market (PTM) behavior in firms. We find that renouncing monetary policy autonomy becomes a cost of currency integration when the consumption basket weights differ between candidate countries and when country-specific total factor productivity (TFP) shocks hit economies, even when the union fulfills the classic optimum currency area theory of labor mobility. We also found that a firm's PTM behavior has a significant effect on the welfare implications of currency integration combined with labor mobility. For instance, currency integration does not produce greater welfare losses in the PTM case (where the labor input weights differ across member countries and asymmetric labor disutility shocks occur), although greater welfare losses arise in the case of producer currency pricing.

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Taiyo Yoshimi

2016

Global Economic Review, Vol.45, No.1 (February): 78-96

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In the present paper, we constructed a DSGE model with two types of workers with heterogeneous wage contracts, unionized and non-unionized wages, to investigate macroeconomic dynamics and welfare implications. The innovative feature of this paper is to examine direct substitution effects between workers with both types of wage contracts by introducing firms that jointly employ them. It is revealed that the macroeconomic volatility and welfare loss to asymmetric labor productivity shock increased and decreased with the elasticity of substitution between two types of workers and labor unions' bargaining power, respectively. Furthermore, those of monetary policy shock increased with labor unions' bargaining power, which implies that better monetary policy design is more important when unions are more influential.

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Muneya Matsui and Taiyo Yoshimi

2015

Economic Modelling, Vol.49 (September): 72-80

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We investigate the welfare implications of monetary policy arrangements in a small open economy, considering firms' bank-based finances that are widely observed in emerging ASEAN countries. The impact of an unexpected change in the lending rate spread, or a lending rate spread shock, depends on the presence of banking activity in the economy. This presence is important in Malaysia and Vietnam, where welfare effects of this type of shock are at least comparable to those of foreign monetary policy shocks. We also find that a rigid exchange rate arrangement amplifies the effect of a shock.

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Taiyo Yoshimi

2014

Asian Economic Journal, Vol.28, No.1 (March): 19-39

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We assess whether renouncing monetary policy autonomy becomes a cost of currency integration under labor mobility in the framework of the New Open Economy Macroeconomics. Assuming Nash equilibrium among central banks of candidate countries, we find that the forfeiture of monetary policy autonomy becomes a cost when country-specific total factor productivity shocks hit them, labor input weights differ between candidate countries, and country specific shocks on marginal disutility of labor occur. These finer points suggest that it cannot generally be concluded that there is no cost of currency integration under labor mobility, as discussed in the classic Optimum Currency Area theory.

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Taiyo Yoshimi

2014

Journal of Economic Integration, Vol.29, No.1 (March): 188-209

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We construct a DSGE model with heterogeneity in wage rigidity, and compare the welfare effects of several monetary policy rules, including the standard Taylor rule. We find that monetary policy rules considering wage inflations improve the welfare by stabilizing employment against the labor productivity shock. Further, a monetary policy rule with consideration for the inflation of wages which are adjusted more frequently, namely more flexible wage inflation, becomes better than one with consideration for less flexible wage inflation. It realizes smaller welfare loss than the standard Taylor rule when the weight on the labor disutility in the household's utility function is sufficiently large.

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Muneya Matsui and Taiyo Yoshimi

2013

Review of Integrative Business and Economics Research, vol.2, issue 2 (July): 489-520

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This paper focuses on recent events which include the RMB reform in China and the global financial crisis to investigate statistically recent diverging trends among East Asian currencies. For the purpose, their weighted average value (Asian Monetary Unit: AMU) and their deviations (AMU Deviation Indicators) from benchmark levels are used to analyze both β and σ convergences of East Asian currencies. Our analytical results show that the monetary authority of China has still kept stabilizing the exchange rate of the Chinese yuan against only the US dollar even though it announced its adoption of a managed floating exchange rate system with reference to a currency basket. Analytical results on β and σ convergences show that deviations among the East Asian currencies have been diverging in recent years, especially after 2005. The widening deviations reflect not the RMB reform but recent international capital flows and the global financial crisis. In addition, it is important as its background that the monetary authorities of the countries are adopting a variety of exchange rate systems. In other words, a coordination failure in adopting exchange rate systems among these monetary authorities increases volatility and misalignment of intraregional exchange rates in East Asia.

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Eiji Ogawa and Taiyo Yoshimi

2010

International Journal of Intelligent Technologies and Applied Statistics, vol.3, No.2 (June): 235-261

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Using panel data for 17 Organization for Economic Co-operation and Development (OECD) countries for the period 1983-2003, this paper investigates the effects of financial integration on specialization and international structural similarity. Theoretically, financial integration motivates countries to specialize on the basis of their comparative advantages and decreases the structural similarity between them. Our empirical analyses support the hypothesis.

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Taiyo Yoshimi

2009

The International Economy, No.13 (November): 50-64

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Recent empirical studies explore factors behind the currency invoicing pattern in exports of listed firms by using questionnaire surveys; however, there is insufficient evidence regarding small and medium-sized enterprises (SMEs). We conducted a questionnaire survey for 2,100 unlisted manufacturers engaged in exports during the 2010s and received responses from 300 firms. By constructing a database with invoice currency choice and trade partner by export destination, we empirically examine the determinants of invoice currency choice in export using the probit model estimation. We confirm that the major determinants of currency invoicing in existing research effectively work as determinants of currency invoicing by SMEs. After controlling for various determinants, we found that financial constraints play an important role in their invoice currency choice. The firms with deteriorated capital ratios and rapid sales growth depend more on the producer's currency invoicing. The results are confirmed through a robustness test using detailed financial data, showing that the firms with lower capital ratios, lower liquidity positions, and greater investment opportunities tend to use the producer's currency invoicing. These novel findings are consistent with the predictions from the theoretical research on the bargaining model of currency invoicing and corporate risk management for hedging.

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Goto, Mizuki, Kazunobu Hayakawa, Satoshi Koibuchi and Taiyo Yoshimi

2021

RIETI Discussion Paper, 21-E-080 (October)

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The purpose of this study is to analyze the factors that promote the usage of local currencies in Japanese trade in Asia by utilizing a large-scale firm-level questionnaire survey in 2018 on Japanese overseas subsidiaries in Asia and to discover why the usage of Asian currencies has increased recently. The major findings are as follows: first, with respect to the choice of invoicing currency, subsidiaries with large sales tended to choose the U.S. dollar while those with small sales tended to choose the yen or local currency; second, subsidiaries established for sales to the local market tended to choose the local currency; third, overseas subsidiaries tended to unify the transaction currency on both the import and export sides, a practice called the natural hedge; fourth, subsidiaries with large local currency borrowing, a high share of local procurement, and a joint venture with local firms who try to maximize their profits measured using local currency, tend to adopt local currency invoicing. These results suggest that the role of the U.S. dollar as the main invoice currency is in decline, as Japanese exporting firms move away from using Asian subsidiaries as a platform to export to the United States and increasingly use Asian subsidiaries as a local sales base in Asian countries and an export platform to China and back to Japan.

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Ito, Takatoshi, Satoshi Koibuchi, Kiyotaka Sato, Junko Shimizu and Taiyo Yoshimi

2021

RIETI Discussion Paper, 21-E-016 (March)

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In investigations on the role of tariff rates in the gravity equation, applied tariff rates (i.e., the lowest available rates) are often introduced. However, not all exporters use the lowest available rates, especially when some cost is incurred in using those rates. This implies that it is not prudent to introduce only the applied tariffs into the gravity equation. Accordingly, this study discusses how to deal with tariff variables in the gravity estimation. Specifically, it empirically demonstrates that when multiple tariff schemes are available, omitting tariffs in either scheme creates a remarkable bias in the estimates. When we control for other tariffs by explicit variables or fixed effects defined at an appropriate level (e.g., importer-product-year fixed effects), the use of applied tariffs can be justified.

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Kazunobu Hayakawa and Taiyo Yoshimi

2020

IDE Discussion Paper No.796 (August)

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We incorporate different sectoral job separation rates into a two-sector small open economy model to investigate the Balassa-Samuelson (B-S) effect. While labour is mobile, unemployment occurs due to search frictions. In addition, unequal separation rates give rise to compensating wage differentials. When productivity grows in the tradeables sector, labour moves from the tradeables sector to the nontradeables sector if tradeables and nontradeables are complements in consumption. Nevertheless, unemployment always falls due to the positive income effect. We also find that the effect of productivity growth in the tradeables sector on the real exchange rate is reduced by almost 38 per cent when separation rates differ across sectors and tradeables and nontradeables are complements. Overall, an overvaluation of the real exchange rate in the basic B-S model can be explained by heterogeneous job separations.

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Gaston Noel and Taiyo Yoshimi

2020

RIETI Discussion Paper Series 20-E-032 (April)

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This study proposes a new approach for quantifying two kinds of costs related to the utilization of regional trade agreements (RTAs). The first, which we call the "procurement adjustment cost," represents the cost involved in meeting rules of origin through the adjustment of procurement sources. The second is the additional fixed costs required to utilize RTAs, including document preparation costs for the certification of origin. The proposed approach makes it possible to compute these two costs separately using product-level data. It is built on a model of international trade where heterogeneous exporters decide which tariff scheme to use. Applying our approach to Thailand's imports from China, our estimates suggest that procurement adjustment costs to comply with RTA rules of origin at the median are equivalent to 4 per cent of per-unit production costs. In addition, RTA utilization requires an additional 27 per cent of fixed costs. Furthermore, simulation analysis shows that a reduction of the additional fixed costs by half would raise the RTA utilization rate by 13 percentage points, while the complete elimination of procurement adjustment costs would raise the RTA utilization rate by 32 percentage points.

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Kazunobu Hayakawa, Naoto Jinji, Nuttawut Laksanapanyakul, Toshiyuki Matsuura and Taiyo Yoshimi

2020

Kyoto University, Graduate School of Economics Discussion Paper, E-19-010 (January)

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This paper proposes a method of quantifying the additional fixed cost to exporters of taking advantage of regional trade agreements (RTAs). Such additional fixed costs can be measured by the ratio of fixed costs resulting from preference utilization to those associated with non-preferential export activities, or "fixed cost ratio (FCR)." Our method is built on a model of international trade where heterogeneous exporters decide what tariff schemes to use. By applying our method to Japan's imports from RTA partner countries, we obtain the median estimate for FCR of 0.04-0.08, implying that RTA utilization imposes fixed cost increases of 4-8 per cent. Furthermore, we demonstrate that the reduction of the FCR by half raises the RTA utilization rate by 22 percentage points. We also compute the change in procurement costs resulting from compliance with RTA rules of origin. Our estimate of the change is two percent of per-unit production cost. Then, we simulate the complete elimination of these additional procurement costs, which had the impact of a 20 percentage point rise in RTA utilization rate.

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Kazunobu Hayakawa, Naoto Jinji, Toshiyuki Matsuura and Taiyo Yoshimi

2019

RIETI Discussion Paper 19-E-054 (July)

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In this paper, using finely disaggregated firm-level export data for Thailand, we examine how firms' export experience is related to the dynamic choice of the invoicing currency. We present evidence that the majority of exporters seldom change the invoicing currency for the same product/destination during the sample period. This evidence implies that changing the invoicing currency is costly for exporters. We also find that even after controlling for export size, the probability of choosing the export country's currency, or the producers' currency (PC) for the first export is significantly higher than for the export of the second and subsequent products/destinations. Assuming importers are risk averse, this finding implies that the accumulation of firm export experience provides better know-how for exchange rate risk management and enhances the use of currencies other than the PC in order to gain better profit. We also propose a theoretical model that provides the rationale for these empirical findings.

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Kazunobu Hayakawa, Toshiyuki Matsuura, Nuttawut Laksanapanyakul and Taiyo Yoshimi

2019

ERIA Discussion Paper Series ERIA-DP-2018-14 (March)

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While previous theoretical studies have examined exporters' choice of tariff schemes without considering explicit heterogeneity of importers, an empirical analysis on regional trade agreement (RTA) utilization is, in general, possible by employing trade data covering the importers' side. To better link the empirical analysis with a theoretical model, this study develops a model that sheds light on the role of both importers' and exporters' characteristics in RTA utilization. The model enables us to replicate stylized facts concerning importers' RTA utilization. Based on this model, we derive some propositions on the determinants of RTA utilization rates (i.e., share of imports under RTA schemes out of total imports) at an import firm-product level. Finally, we found that these theoretical predictions are supported by highly detailed import data in Thailand from Australia from 2007 to 2009.

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Kazunobu Hayakawa, Nuttawut Laksanapanyakul and Taiyo Yoshimi

2016

IDE Discussion Paper No.615 (August)

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