Imported-Inputs Channel of Exchange Rate Pass-Through: Evidence from Korean Firm-Level Pricing Survey

29 Pages Posted: 28 Mar 2015

See all articles by JaeBin Ahn

JaeBin Ahn

International Monetary Fund (IMF)

Chang-Gui Park

The Bank of Korea

Date Written: April 25, 2014

Abstract

This paper studies the imported inputs channel of exchange rate pass through to the prices of domestically produced goods, exploring the firm-level pricing survey conducted by the Bank of Korea. The survey data reveal that imported inputs play a major role in transmitting exchange rate fluctuations to domestic producer prices, and that the degree of exchange rate pass-through tends to be nonlinear and asymmetric: it is higher when changes in exchange rate are large or when the local currency depreciates. A further investigation of the sources of nonlinearity and asymmetry supports the model's prediction that nonlinear pass-through may arise because large exchange-rate movements trigger additional indirect effects via industry-level price movements, while asymmetric pass-through can be driven by capacity constrained firms.

Keywords: Exchange rate pass-through, Imported inputs channel, Nonlinearity, Asymmetry

JEL Classification: F1, F3, F4, E3

Suggested Citation

Ahn, JaeBin and Park, Chang-Gui, Imported-Inputs Channel of Exchange Rate Pass-Through: Evidence from Korean Firm-Level Pricing Survey (April 25, 2014). Bank of Korea WP 2014-11, Available at SSRN: https://ssrn.com/abstract=2580605 or http://dx.doi.org/10.2139/ssrn.2580605

JaeBin Ahn (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Chang-Gui Park

The Bank of Korea ( email )

39, Namdaemun-ro, Jung-gu
Seoul, 04531
Korea, Republic of (South Korea)

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