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Exchange rate pass-through at the individual product level: Implications for financial market integration

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  • Law, Kai Po Jenny
  • Satoh, Eiji
  • Yoshimi, Taiyo

Abstract

Global and regional integration of financial markets with enhanced international monetary transactions between economic agents increases the exchange rate risk. As this obstacle is growing at speed, market integration should be developed with a view to avoid this risk. In this study, we investigate exchange rate pass-through (ERPT) to examine who takes this risk. Specifically, we estimate the degree of ERPT for individual products by using primary auction price data of used/second-hand construction machinery purchased in Japan and then exported to Thailand for resale. Our empirical analysis of these data at the individual product level enables us to avoid bias in estimating ERPT caused by the use of aggregated data. We find that ERPT is asymmetric and changes in exchange rates are reflected in baht-denominated resale prices only when the baht appreciates against the yen. This indicates that raising resale prices in the destination market is more difficult for the exporters than lowering them, meaning that they can suffer significantly from the exchange rate risk. This paper serves as a reference for a safer financial market by learning how market players are influenced by the exchange rate in a trade market with a unique dataset.

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  • Law, Kai Po Jenny & Satoh, Eiji & Yoshimi, Taiyo, 2018. "Exchange rate pass-through at the individual product level: Implications for financial market integration," The North American Journal of Economics and Finance, Elsevier, vol. 46(C), pages 261-271.
  • Handle: RePEc:eee:ecofin:v:46:y:2018:i:c:p:261-271
    DOI: 10.1016/j.najef.2018.04.011
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    1. Deepika Krishnan & Vishal Dagar, 2022. "Exchange Rate and Stock Markets During Trade Conflicts in the USA, China, and India," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 14(2), pages 185-203, May.

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    More about this item

    Keywords

    Financial market integration; Exchange rate pass-through; Matched microdata; Asia;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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