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

Author

Listed:
  • Nidhaleddine Ben Cheikh

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

Abstract
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.

Suggested Citation

  • Nidhaleddine Ben Cheikh, 2012. "Non-linearities in exchange rate pass-through: Evidence from smooth transition models," Economics Bulletin, AccessEcon, vol. 32(3), pages 2530-2545.
    • Handle: RePEc:ebl:ecbull:eb-12-00499
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    More about this item

    Keywords

    Exchange Rate Pass-Through; Inflation; Smooth Transition Regression Models; Euro Area;
    All these keywords.

    JEL classification:

    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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