Exchange rate pass-through, which shows the effects of fluctuation of exchange rate on domestic prices, has been seriously concerned since new systems, such as free-floating exchange rate and inflation targeting, have been carried out after the Asian Financial Crisis. If the exchange rate pass-through is low, the autonomy of monetary policy is high and more likely to achieve the target inflation rate. On the other hand, if the exchange rate pass-through is high, the autonomy of monetary policy may be disturbing by fluctuation of exchange rate, working as unstable factor in domestic prices.

Although soaring tendency of crude oil and raw material price since 2002, domestic prices has been relatively stable until Oct. 2007 due to weak dollar. However, fear of domestic prices instability spread out when inflation was accelerated as the exchange rate rose from Nov. 2007.

As a result of comparing exchange rate pass-through estimation between pre and post financial crisis, both short-term and long-term exchange rate pass-though of the prices for imported goods, the producer prices, and consumer prices is generally increased after the Financial Crisis. Exchange rate shock is adjusted in shorter period as well. Moreover, impact of exchange rate on inflation is getting bigger. As increase in exchange rate pass-through shows the stronger relationship between exchange rate and domestic prices, the harmony of the monetary policy and exchange rate policy is required in order to achieve the domestic price stabilization.