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Non-linearities in exchange rate pass-through: Evidence from smooth transition models

  • Nidhaleddine Ben Cheikh

    ()

    (University of Rennes 1 - CREM (UMR CNRS 6211))

This paper examines the presence of non-linear mechanism in the exchange rate pass-through (ERPT) to CPI inflation for 12 euro area (EA) countries. Using smooth transition regression (STR) model, we explore the existence of non-linearities with respect to the inflation environment. We find strong evidence that pass-through respond non-linearly to inflation level for 8 out of 12 EA countries, that is, the transmission of exchange rate is higher when inflation rate surpass some threshold. Our results provide a broad support to the hypothesis suggested by Taylor (2000) that ERPT is decreasing in a lower and more stable inflation environment.

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File URL: http://www.accessecon.com/Pubs/EB/2012/Volume32/EB-12-V32-I3-P243.pdf
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Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 32 (2012)
Issue (Month): 3 ()
Pages: 2530-2545

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Handle: RePEc:ebl:ecbull:eb-12-00499
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