Asymmetric Exchange Rate Pass-through into Korea’s Export Prices to China : An Industry Level Analysis

This paper analyzes the ERPT (Exchange Rate Pass-Through) into Korea's aggregate export price and prices of 18 industries to China, under the HS (Harmonized System) classification, utilizing monthly data from July 2005 to November 2017. By adopting the bound test, long-term co-integration relationships have been established in 17 industries, when assuming symmetric ERPT effects. All industries are co-integrated in the long-run when assuming the ERPT effects are asymmetric. By employing linear ARDL (Auto Regressive Distributed Lag) and nonlinear ARDL model, the estimation results show that the ERPT into Korea's aggregate export prices to China is -0.38. The degree of ERPT effects varies across industries. Asymmetric ERPT effects into Korea's export prices to China are detected in most of the industries. Our findings suggest that exchange rate policies are crucial to adjust Korea-China export prices. Pricing power should be enhanced in some less competitive industries