The response of exchange rate pass-through to market concentration in a small economy: The evidence from Korea

This paper finds that domestic market concentration in Korea, a small country, systematically affects pass-through of individual industries. The estimates suggest that exchange rates are only partially passed on to import prices in Korea. The evidence implies that imperfect competition is relevant for the exchange rate pass-through, even in a small economy. This finding has important implications for issues such as inflationary effects of depreciation and the effect of trade liberalization.