BOK Working/Discussion Papers

  1. Research Papers
  2. BOK Working/Discussion Papers

BOK Working Paper No.2014-11, Imported-Inputs Channel of Exchange Rate Pass-Through : Evidence from Korean Firm-Level Pricing Survey

Economic Research Institute (+82-42-825-1211) 2014.04.25 7151

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

Author : Jae Bin Ahn(IMF), Chang-Gui Park(BOK)

 

<Abstact>

 

 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.

top