Theoretical and Empirical Evidence for the Impact of Cross-Border Production Sharing on Exchange Rate Pass-Through

Lihuei Lan, Luke Lin, Wenyuan Lin and Shuangshii Chuang

Emerging Markets Finance and Trade, 2013, vol. 49, issue S4, 280-300

Abstract: This paper uses the theoretical model created by Ghosh (2009) to analyze the extent of exchange rate pass-through (ERPT) for traditional trade and different production sharing cases. Comparing the differences among these scenarios reveals that production sharing could be a reason for the continual decline in ERPT. Furthermore, empirical evidence from Taiwan indicates that under production sharing, the pricing-to-market for intermediate goods exporters and the currency fluctuation in the home country of end products exporters will further influence the magnitude of the decline in ERPT.

Keywords: exchange rate pass-through; pricing to market; production sharing (search for similar items in EconPapers)
Date: 2013
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