Factor decomposition of income inequality change : Japan's regional income disparity from 1955 to 1998

We propose a method for the decomposition of inequality changes based on panel data regression. The method is an efficient way to quantify the contributions of variables to changes of the Theil T index while satisfying the property of uniform addition. We illustrate the method using prefectural data from Japan for the period 1955 to 1998. Japan experienced a diminishing of regional income disparity during the years of high economic growth from 1955 to 1973. After estimating production functions using panel data for prefectures in Japan, we apply the new decomposition approach to identify each production factor’s contributions to the changes of per capita income inequality among prefectures. The decomposition results show that total factor productivity (residual) growth, population change (migration), and public capital stock growth contributed to the diminishing of per capita income disparity.

Sources of fluctuations in parallel exchange rates and policy reform in Myanmar

Myanmar maintained a multiple exchange rate system, and the parallel market exchange rate was left untamed. In the last two decades, the Myanmar kyat exchange rate of the parallel market has exhibited the sharpest fluctuations among Southeast Asian currencies in real terms. Since the move to a managed float regime in April 2012, the question arises of whether exchange rate policies will be effective in stabilizing the real exchange rate. This paper investigates the sources of fluctuations in the real effective exchange rate using Blanchard and Quah’s (1989) structural vector autoregression model. As nominal shocks can be created by exchange rate policies, a persistent impact of a nominal shock implies more room for exchange rate policies. Decomposition of the fluctuations into nominal and real shocks indicates that the impact of nominal shocks is small and quickly diminishes, implying that complementary sterilization is necessary for effective foreign exchange market interventions.