Exchange Rate Pass-Through and Market Response: The Case of the US Steel Market

MoonJoong Tcha and Jae Hoon Kim ()
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MoonJoong Tcha: UWA Business School, The University of Western Australia

No 03-02, Economics Discussion / Working Papers from The University of Western Australia, Department of Economics

Abstract: The relationship between real exchange rate pass-through (ERPT) for market price and an individual country’s price was theoretically formulated and empirically explored, using steel products data in the US market, with special reference to two major steel exporting countries, Japan and Korea. It was found that the direction of market ERPT can be different from that of individual ERPT, due to strategic interactions among producers and different parameters. Vector error correction models and impulse response analysis were used with the statistical inference based on the bootstrap-after-bootstrap of Kilian (1998) for short-run, and the fully modified estimation of Phillips and Hansen (1990) was used for long-run. Empirical results indicate that market ERPT against Japan-US exchange rates is different from that against Korea-US exchange rates. The framework developed in this study indicates that this phenomenon is attributed to either the two countries having different ERPTs, or the other countries’ pricing strategies against the two countries ERPT being different.

Keywords: Market exchange rate pass-through; individual exchange rate pass-through; elasticities (search for similar items in EconPapers)
JEL-codes: F0 F1 L1 (search for similar items in EconPapers)
Date: Written 2003
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