Exchange rate pass-through at the individual product level: Implications for financial market integration |
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| Institution: | 1. JL Corporation, 1-4-9 Awaza, Nishi-ku, Osaka-shi, Osaka 550-0011, Japan;2. Faculty of Economics and Business Administration, Fukushima University, 1 Kanayagawa, Fukushima-shi, Fukushima 960-1296, Japan;3. Faculty of Economics, Chuo University, 742-1 Higashinakano, Hachioji-shi, Tokyo 192-0393, Japan;1. Department of Applied Economics, Fo Guang University, Yilan, Taiwan;2. Department of Economics, Feng Chia University, Taichung, Taiwan;3. Department of Leisure Management, Tungnan University, Taipei, Taiwan;1. College of Business, Korea Advanced Institute of Science and Technology, 85 Hoegiro, Dongdaemoon-gu, Seoul 02455, South Korea;2. Department of Accounting and Finance, Strathclyde Business School, University of Strathclyde, Glasgow G4 0QU, UK;1. Emeritus Professor of Economics, Athens University of Economics and Business, 76 Patision Street, Athens 104 34, Greece;2. Professor of Economics, DePaul University, 1, E. Jackson Bvld., Chicago, IL 60604, USA;3. Emeritus Professor of Economics, Indian Institute of Management, Kozhikode 673 570, India;1. Facultad de Economía y Negocios, Universidad de Talca, Chile;2. Facultad de Ingeniería, Universidad de Talca, Chile;3. Queensland University of Technology, School of Economics and Finance, Australia;1. School of Economics, Shandong University, China;2. School of Business & Law, Edith Cowan University, Australia;3. School of Finance, Shandong University of Finance and Economics, China |
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| 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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| Keywords: | Financial market integration Exchange rate pass-through Matched microdata Asia |
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