Title: Time Varying Exchange Rate Path-through in Korean Economy
Abstract: In this paper, the exchange rate pass-through of Korean economy is examined by using a time-varying parameter VAR model. The exchange rate pass-through is divided into impacts of nominal exchange rate and real effective exchange rate fluctuations to export prices, import prices, PPI and CPI. The main findings are in order. First, all pass-throughs have time varying behaviors and these changes in pass-through are statistically significant and economically non-negligible. For instance, in the case of the real effective exchange rate, the long-run responsiveness of EXUV and PPI to 10% exchange rate fluctuation has changed around 1.4 and 3.7 percentage points, respectively. Second, the changes in pass-through using the real effective exchange rate took place abruptly compared with those estimated by the nominal exchange rate. Third, the persistent declines in pass-through to CPI after 1999:5 are associated with the lower and the more stable consumer prices inflation environment. The evidence is mixed for the pass-through to PPI.
Publication Year: 2010
Publication Date: 2010-11-01
Language: en
Type: article
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