Pass-Through of Imported Input Prices to Domestic Producer Prices : Evidence from Sector-Level Data

Author/Editor:

JaeBin Ahn ; Chang-Gui Park ; Chanho Park

Publication Date:

February 12, 2016

Electronic Access:

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Summary:

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.