Asian Financial Crisis and Exchange Rate Pass-Through in Korea
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This paper empirically examines the asymmetric price setting behavior on exchange rate volatility from foreign firms of Korea’s major trading partners which causes an incomplete exchange rate pass-through into import prices in Korea. The study demonstrates that there exists a significant difference between the exchange rate pass-through to aggregate import prices in Korea during the post-Asian financial crisis period and its counterpart during the pre-crisis period. The results from time series data support that both short-term and long-term exchange rate pass-through elasticities to import prices in the Korean economy during the post-Asian financial crisis period are greater than those during the pre-crisis period. The pass-through can be endogenous to the monetary policy regime. For the case of Korea, pass-through rates into import prices at least during the post-crisis period are more a function of macroeconomic conditions and international markets than the domestic monetary policy.