Pass-Through of Imported Input Prices to Domestic Producer Prices: Evidence from Sector-Level Data
IMF Working Papers, February 12, 2016
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- Pass-Through of Imported Input Prices to Domestic Producer Prices: Evidence from Sector-Level Data
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Bibliographic details
- Authors: JaeBin Ahn, Chang-Gui Park, Chanho Park
- Published: February 12, 2016
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781475522280.001
Summary and research question
- Motivated by stylized facts pointing to a dominant role of imported inputs in transmitting external price shocks to domestic prices.
- Research question: How much do effective imported input costs pass through to domestic producer prices at the sector level?
Methodology
- Constructs effective input price indices using:
- Sector-level price data.
- Sector-level information on input-output linkages.
- Empirical approach: Applies an error correction model specification to sector-level output and input prices.
- Estimation emphasis: Long-run pass-through rates using the DFE estimator (keywords indicate "coefficients from the DFE estimator").
Key findings
- Long-run pass-through rate of effective imported input costs to domestic producer prices is estimated to be around 70 percent in Korea.
- Long-run pass-through rate is almost 100 percent in selected European countries.
Implications (interpretive bullets drawn from findings)
- Imported input costs are a major channel for external price shocks to affect domestic producer prices.
- The strength of pass-through varies across countries: substantial but incomplete in Korea (around 70 percent) and near-complete in selected European countries (almost 100 percent), implying different degrees of domestic absorption or transmission mechanisms across economies.
Source: IMF Working Paper "Pass-Through of Imported Input Prices to Domestic Producer Prices: Evidence from Sector-Level Data" (February 12, 2016) by JaeBin Ahn, Chang-Gui Park, Chanho Park; Working Paper No. 2016/023; DOI: https://doi.org/10.5089/9781475522280.001