Imported-Inputs Channel of Exchange Rate Pass-Through: Evidence from Korean Firm-Level Pricing Survey
29 Pages Posted: 28 Mar 2015
Date Written: April 25, 2014
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: Suggested Citation