The Impact of Exchange Rate and Economic Sentiment Index (ESI) on Price Level

This study aims to analyze the impact of exchange rates and ESI(economic sentiment index) on price level. To do this, IRF(Impulse response function) based on the VAR(vector auto-regression) model for three exchange rates (won/US dollar, won/yen, won/yuan) and four price indices (consumer price index, agricultural and livestock product price index, core price index, living price index) was used. The main conclusions are as follows: First, the impact of the exchange rate on price level was found to be positive, and the influence of the exchange rate for each payment currency on the price index was varied. Second, the impact of ESI on price level was also positive, and in particular, the agricultural and livestock product price index responded most sensitively. Third, when considering the COVID-19 period, the influence of exchange rates and ESI on price level responded more sensitively than during the period when COVID-19 was not considered. Through this, this study emphasized the importance of exchange rate monitoring policy and preemptive price management policy against economic shocks.