Non-linearities in exchange rate pass-through: Evidence from smooth transition models
This paper examines the presence of nonlinear mechanisms in the exchange rate pass-through (ERPT) to CPI inflation for 12 euro area (EA) countries. Using smooth transition models, we explore the existence of non-linearities with respect to three macroeconomic factors, namely inflation rate, exchange rate fluctuations and business cycle. Our results reveals that exchange rate transmission is higher when inflation rate surpass some threshold. We give a supportive evidence to the Taylor’s view that pass-through is decreasing in a lower and more stable inflation environment. Next, we check the asymmetry of pass-through with respect to both direction and magnitude of exchange rate. In one hand, results provide an asymmetrical ERPT to appreciations and depreciations, but there is no clear direction of asymmetry. In the other hand, the degree of pass-through is found to be higher for large exchange rate changes than for small ones. Finally, when we examine the non-linearities of ERPT relative to business cycle, we report that passthrough depends positively on economic activity; that is, when real GDP is growing above some threshold, the extent of ERPT becomes higher.
|Date of creation:||Apr 2012|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Giovanni P. Olivei, 2002. "Exchange rates and the prices of manufacturing products imported into the United States," New England Economic Review, Federal Reserve Bank of Boston, issue Q 1, pages 3 - 18.
- Jiawen Yang, 2007. "Is exchange rate pass-through symmetric? Evidence from US imports," Applied Economics, Taylor & Francis Journals, vol. 39(2), pages 169-178.
- Eiji Fuji & Jeannine Bailliu, 2004.
"Exchange Rate Pass-Through and the Inflation Environment in Industrialized Countries: An Empirical Investigation,"
Computing in Economics and Finance 2004
135, Society for Computational Economics.
- Jeannine Bailliu & Eiji Fujii, 2004. "Exchange Rate Pass-Through and the Inflation Environment in Industrialized Countries: An Empirical Investigation," Staff Working Papers 04-21, Bank of Canada.
- Mototsugu Shintani & Akiko Terada-Hagiwara & Tomoyoshi Yabu, 2009.
"Exchange Rate Pass-Through and Inflation: A Nonlinear Time Series Analysis,"
Vanderbilt University Department of Economics Working Papers
0920, Vanderbilt University Department of Economics.
- Shintani, Mototsugu & Terada-Hagiwara, Akiko & Yabu, Tomoyoshi, 2013. "Exchange rate pass-through and inflation: A nonlinear time series analysis," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 512-527.
- Mototsugu Shintani & Akiko Terada-Hagiwara & Tomoyoshi Yabu, 2012. "Exchange rate pass-through and inflation: a nonlinear time series analysis," Vanderbilt University Department of Economics Working Papers 12-00008, Vanderbilt University Department of Economics.
- Dalia S Hakura & Ehsan U. Choudhri, 2001.
"Exchange Rate Pass-Through to Domestic Prices; Does the Inflationary Environment Matter?,"
IMF Working Papers
01/194, International Monetary Fund.
- Choudhri, Ehsan U. & Hakura, Dalia S., 2006. "Exchange rate pass-through to domestic prices: Does the inflationary environment matter?," Journal of International Money and Finance, Elsevier, vol. 25(4), pages 614-639, June.
- Matthieu Bussiere, 2013.
"Exchange Rate Pass-through to Trade Prices: The Role of Nonlinearities and Asymmetries,"
Oxford Bulletin of Economics and Statistics,
Department of Economics, University of Oxford, vol. 75(5), pages 731-758, October.
- Bussière, Matthieu, 2007. "Exchange rate pass-through to trade prices: the role of non-linearities and asymmetries," Working Paper Series 0822, European Central Bank.
- Mario Marazzi & Nathan Sheets & Robert J. Vigfusson & Jon Faust & Joseph E. Gagnon & Jaime R. Marquez & Robert F. Martin & Trevor A. Reeve & John H. Rogers, 2005. "Exchange rate pass-through to U.S. import prices: some new evidence," International Finance Discussion Papers 833, Board of Governors of the Federal Reserve System (U.S.).
- Valerie Herzberg & George Kapetanios & Simon Price, 2003. "Import prices and exchange rate pass-through: theory and evidence from the United Kingdom," Bank of England working papers 182, Bank of England.
- Patricia S. Pollard & Cletus C. Coughlin, 2004. "Size matters: asymmetric exchange rate pass-through at the industry level," Working Papers 2003-029, Federal Reserve Bank of St. Louis.
- Salvador Gil-Pareja, 2000. "Exchange rates and European countries’ export prices: An empirical test for asymmetries in pricing to market behavior," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 136(1), pages 1-23, March.
- Correa, Arnildo da Silva & Minella, André, 2010.
"Nonlinear Mechanisms of the Exchange Rate Pass-Through: A Phillips Curve Model with Threshold for Brazil,"
Revista Brasileira de Economia,
FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil), vol. 64(3), pages -, June.
- Arnildo da Silva Correa & André Minella, 2006. "Nonlinear Mechanisms of the Exchange Rate Pass-Through: a Phillips curve model with threshold for Brazil," Working Papers Series 122, Central Bank of Brazil, Research Department.
- Jan Przystupa & Ewa Wróbel, 2011.
"Asymmetry of the Exchange Rate Pass-Through,"
Eastern European Economics,
Taylor & Francis Journals, vol. 49(1), pages 30-51, January.
- Joseph E. Gagnon & Jane E. Ihrig, 2001. "Monetary policy and exchange rate pass-through," International Finance Discussion Papers 704, Board of Governors of the Federal Reserve System (U.S.).
- Kozluk, Tomasz & Banerjee, Anindya & de Bandt, Olivier, 2008.
"Measuring Long-Run Exchange Rate Pass-Through,"
Economics - The Open-Access, Open-Assessment E-Journal,
Kiel Institute for the World Economy (IfW), vol. 2, pages 1-36.
- de Bandt, Olivier & Banerjee, Anindya & Kozluk, Tomasz, 2007. "Measuring Long-Run Exchange Rate Pass-Through," Economics Discussion Papers 2007-32, Kiel Institute for the World Economy (IfW).
- .De Bandt, O. & Banerjee, A. & Kozluk, T., 2007. "Measuring Long-Run Exchange Rate Pass-Through," Working papers 173, Banque de France.
- Gregory, Allan W. & Hansen, Bruce E., 1996.
"Residual-based tests for cointegration in models with regime shifts,"
Journal of Econometrics,
Elsevier, vol. 70(1), pages 99-126, January.
- Gregory, A.W. & Hansen, B.E., 1992. "Residual-Based Tests for Cointegration in Models with Regime Shifts," RCER Working Papers 335, University of Rochester - Center for Economic Research (RCER).
- Tom Doan, . "GREGORYHANSEN: RATS procedure to implement Gregory-Hansen test for Cointegration with breaks," Statistical Software Components RTS00082, Boston College Department of Economics.
- Tom Doan, . "RATS programs to replicate results from Gregory and Hansen(1996) JOE article," Statistical Software Components RTZ00081, Boston College Department of Economics.
- Allan w. Gregory & Bruce E. Hansen, 1992. "residual-Based Tests for Cointegration in Models with Regime Shifts," Working Papers 862, Queen's University, Department of Economics.
- Reginaldo P. Nogueira Junior & Miguel Leon-Ledesma, 2008. "Exchange Rate Pass-Through Into Inflation: The Role of Asymmetries and NonLinearities," Studies in Economics 0801, School of Economics, University of Kent.
- Eitrheim, Øyvind & Teräsvirta, Timo, 1995.
"Testing the Adequacy of Smooth Transition Autoregressive Models,"
SSE/EFI Working Paper Series in Economics and Finance
56, Stockholm School of Economics.
- Eitrheim, Oyvind & Terasvirta, Timo, 1996. "Testing the adequacy of smooth transition autoregressive models," Journal of Econometrics, Elsevier, vol. 74(1), pages 59-75, September.
- Marston, Richard C., 1990. "Pricing to market in Japanese manufacturing," Journal of International Economics, Elsevier, vol. 29(3-4), pages 217-236, November.
- Reginaldo P. Nogueira, Jr. & Miguel A. León-Ledesma, 2011. "Does exchange rate pass-through respond to measures of macroeconomic instability?," Journal of Applied Economics, Universidad del CEMA, vol. 14, pages 167-180, May.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:39258. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter)
If references are entirely missing, you can add them using this form.