[2023학년도 1학기]

경제학부 특강(세미나) 6차

– 일시 : 5월 18일(목) 12시~13시

– 장소 : 미래관 906호

– 주제 : Liability Dollarization and Exchange Rate Pass-Through

– 연사 : KDI 김준형 박사님

– 논문 요약

With Korean firm-level and aggregated industry-level data, we explore a balance sheet channel of corporate foreign currency borrowing through which an exchange rate shock passes through to domestic producer prices. We explore this negative balance sheet effect in the determination of the exchange rate pass-through to domestic prices both empirically and theoretically. Exploiting a large devaluation episode in Korea in 1997, we empirically document that a sector with higher foreign currency debt exposure prior to the crisis experienced a larger price increase. Building a heterogeneous  firm model with working capital and financial constraints, we quantitatively study the role of the balance sheet channel in explaining the price dynamics upon an unexpected exchange rate depreciation. In the model, firms with high foreign currency debt exposure face tighter working capital and financial constraints upon a large depreciation; they lower their investment and liquid savings, increasing the costs of production and prices. The model matches qualitatively and quantitatively the observed effect of the foreign currency share of short-term debt on the sectoral price changes. The estimated model can explain around 52% of the variation in price changes across industries during the crisis. From firm-level simulations, we decompose the two distinct channels of exchange rate pass-through – the balance sheet channel and the imported input channel – at the firm-level. We show that firms increase their prices and reduce their markups as they have higher foreign currency debt exposure, especially more so when they are  financially constrained, consistent with the empirical relationships documented.