Heterogeneity in Exchange Rate Pass-through to Import Prices in Thailand: Evidence from Micro Data
We use transaction-level customs data and show that there is significant heterogeneity in exchange rate pass-through (ERPT) to import prices at the Thai border. Our findings uncover significant variations in ERPT across time as well as across disaggregated sectors. By studying several structural determinants of ERPT, we find that (i) prices of homogenous goods are more sensitive to exchange rate changes compared to differentiated goods; (ii) firms with a higher degree of market power face lower ERPT; and (iii) ERPT crucially hinges upon the currency of invoice in the trade transaction. For goods invoiced in a foreign currency, the effect of ERPT is significantly higher than those priced in Thai baht. We also find that for the large majority of Thai imports that are invoiced in the US dollar under the dominant currency pricing (DCP) paradigm, price responses to the US dollar are much higher than those associated with the bilateral exchange rate vis-à-vis the exporters' currency, but only in the short run. In the medium run, both exchange rates become equally relevant. Finally, by investigating state-dependent properties of ERPT, we find that while Thai import prices are equally sensitive to small versus large exchange rate changes, the degree of pass-through is stronger during episodes of depreciations rather than appreciations, particularly for goods that practice DCP.