A Selective Survey of Exchange Rate Pass-Through in Asia: What Does the Literature Tell Us?

Abstract:     
Exchange rate pass-through (ERPT) is broadly defined as the percentage change in domestic prices in the importing nation's currency due to a one percent change in the exchange rate between the trade partners. While the bulk of the literature to date on ERPT has focused on the US and other industrial countries, this paper examines the analytical and empirical literature on ERPT with particular reference to Asia. It is generally believed that since Asian economies are highly trade-dependent they are potentially susceptible to ERPT into domestic inflation. Particular attention is paid to production sharing - which is a key characteristic of trade in Asia - and its consequent implications for ERPT.

Keywords: Asia, Exchange Rate Pass-through (ERPT), Market share, Pricing-to-Market (PTM), Production Sharing

JEL Classifications: E31, F31, F41, O53

Working Paper Series