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We are grateful to Woon Gyu Choi, Huidan Lin, Kum Hwa Oh, Seryoung Park, Steve Phillips, Jerome Vandenbusshe, and participants at the 2016 KAEA Workshop in San Francisco for their very helpful comments. The views expressed in this paper are those of the authors and should not be attributed to the Bank of Korea or the International Monetary Fund.
Although the exact share of imported goods in the CPI basket in Korea is not readily available, our informal interview with the Statistics Korea (KOSTAT) suggests that imported goods cover around 7% of the CPI basket.
Among the vast literature on ERPT, Campa and Goldberg (2005) study exchange rate pass-through to import prices using sector-level cross-country data, while Goldberg and Campa (2010) consider pass-through to CPIs across countries. For previous studies on ERPT in Korea, see Cha (2012) and Kim (2012) who also focus on the role of imported inputs and Lee (1997) who considers the role of market structure in determining the degree of ERPT to import prices.
The sector-level IO table has been widely used in constructing the sector-level input tariff rates (e.g., Amiti and Konings, 2007; Topalova and Khandelwal, 2012), but, to our knowledge, Auer and Mehrotra (2014) is the only preceding study that applies the idea to construct the sector-level imported input price levels.
These 13 manufacturing sectors are: Food; Textile and Leather; Wood and Paper, Print; Petroleum and Coal; Chemical; Non-metallic; Basic metals; Fabricated metals; General machinery; Electronic and Electrical equipment; Precision instruments; Transportation equipment; Furniture and other manufacturing.
For European countries considered later, we get around this potential issue by distinguishing producer prices for both domestic and foreign markets (i.e., output prices on the left-hand side) from those for domestic markets (i.e., input prices on the right-hand side) that are separately available from the Eurostat database.
Only these three countries have the comprehensive data coverage from the Eurostat database at a comparable level to that of the Korean data. Specifically, the Netherlands has perfect coverage for all nineteen 2-digit level manufacturing sectors (Nace Rev. 2) over the period between 2005 and 2014, whereas even France and Germany have missing import price data for some sectors depending on the year.