Exchange Rate Pass-Through into Import Prices: Empirical Evidences from Major Southeast Asian Countries

Most of the empirical studies on exchange rate pass-through focus on industrialized countries, and only a few studies have been done for developing countries. In this paper we estimate exchange rate pass-through for four Southeast Asian countries: Indonesia, the Philippines, Singapore and Thailand, by employing cointegration analysis and Error Correction Mechanism. The results of the estimation using quarterly data show that the long run exchange rate pass-through into import prices for Indonesia, the Philippines, Singapore, and Thailand are 0.983, 1.179, 0.200, and 0.800, respectively. When we use monthly data, the estimates of the long run exchange rate pass-through are 0.885, 1.529, 0.109, and 0.396 for Indonesia, the Philippines, Singapore, and Thailand, respectively. To compare exchange rate pass-through in Southeast countries with those of industrialized countries we estimate the exchange rate pass-through of Australia, Canada, and New Zealand. The exchange rate pass-through of Southeast Asian countries do not have systematic difference with the exchange rate pass-through of the sample of industrialized countries. Macro variables that appear to contribute to the variation of exchange rate pass-through across countries sample are inflation and money growth. From micro side, the presence MNCs together with intra-firm trade seems to have contribution for the variation of exchange rate pass-through across countries.