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The Endogeneity of Exchange Rate Pass-Through: Some European Evidence

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  • Ayako Saiki

Abstract

The decline in exchange rate pass-through (ERPT) in the last three decades is well-documented in the literature. Various studies seek explanations, among which is higher monetary policy credibility. ERPT is often treated as exogenous (i.e., fix coefficient) in policy-makers’ and market participants’ forecasting models. However, if the ERPT is endogenous to monetary policy, it can lead to an error in inflation forecasts and inaccurate policy reaction. Against this backdrop, this paper seeks to examine the endogeneity of exchange rate pass-through to monetary policy, using the European countries as the sample. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Ayako Saiki, 2015. "The Endogeneity of Exchange Rate Pass-Through: Some European Evidence," Open Economies Review, Springer, vol. 26(5), pages 893-909, November.
    • Handle: RePEc:kap:openec:v:26:y:2015:i:5:p:893-909
    DOI: 10.1007/s11079-015-9344-1
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    More about this item

    Keywords

    Monetary policy; Inflation; Exchange rate; Pass-through; GMM; E52; E31; F31; F41; C23; C26;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation

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