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Exchange Rate Pass-Through in the Euro Area

Author

Listed:
  • Mariarosaria Comunale

    (Bank of Lithuania)

  • Davor Kunovac

    (Bank of Finland)

Abstract

In this paper we analyse the exchange rate pass-through (ERPT) in the euro area as a whole and for four euro area members - Germany, France, Italy and Spain. For that purpose we use Bayesian VARs with identification based on a combination of zero and sign restrictions. Our results emphasize that pass-through in the euro area is not constant over time - it may depend on a composition of economic shocks governing the exchange rate. Regarding the relative importance of individual shocks, it seems that pass-through is the strongest when the exchange rate movement is triggered by (relative) monetary policy shocks and the exchange rate shocks. Our shock-dependent measure of ERPT points to a large but volatile pass-through to import prices and overall very small pass-through to consumer inflation in the euro area.

Suggested Citation

  • Mariarosaria Comunale & Davor Kunovac, 2017. "Exchange Rate Pass-Through in the Euro Area," Bank of Lithuania Working Paper Series 38, Bank of Lithuania.
  • Handle: RePEc:lie:wpaper:38
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    More about this item

    Keywords

    Exchange rate pass-through; import prices; consumer prices; in?ation; bayesian vector autoregression.;
    All these keywords.

    JEL classification:

    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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