This paper is an empirical investigation of the less-than-full pass-through phenomenon using Japanese data at a disaggregate industry level and tests the validity of some of the received explanations. The overall cost unadjusted pass-through for the Japanese economy was found to be 0.43 for the 1975:1-1987:4 period though it varied substantially among industries. Materials industries, characterized by product homogeneity, had low pass-through ratios while final goods industries, where product differentiation is pervasive, revealed high ratios. Results, controlled for cost changes, indicate a rise in pass-through ratios generally with improvement more pronounced in materials industries than in final goods industries though the former still had a lower pass-through. Finally, the Japanese export price data do not lend support to the hysteresis phenomenon that has found wide acceptance in recent years. J. Japan. Int. Econ., March 1991, 5(1), pp. 41-59. Japan Center for Economic Research, Nikkei Kayabacho Bekkan, 2-6-1, Kayabacho Nihombashi, Chuo-ku, Tokyo 103, Japan. © 1991 Academic Press, Inc. All rights reserved.
