Pass-Through of Imported Input Prices to Domestic Producer Prices: Evidence from Sector-Level Data
26 Pages Posted: 21 Jan 2016
Date Written: January 19, 2016
Motivated by stylized facts pointing to a dominant role of imported inputs in transmitting external price shocks to domestic prices, this paper zooms in to study the pass-through of imported input costs to domestic producer prices. Our approach constructs effective input price indices from sector-level price data combined with sector-level information on input-output linkages. Applying an error correction model specification to sector-level output and input prices, the long-run pass-through rate of effective imported input costs to domestic producer prices is estimated to be around 70 percent in Korea and almost 100 percent in selected European countries.
Keywords: Exchange rate pass-through, Imported input cost pass-through, Inflation
JEL Classification: E3, F3, F4
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