Ben Cheikh, Nidhaleddine (2012): Non-linearities in exchange rate pass-through: Evidence from smooth transition models.
Download (3MB) | Preview
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.
|Item Type:||MPRA Paper|
|Original Title:||Non-linearities in exchange rate pass-through: Evidence from smooth transition models|
|Keywords:||Exchange Rate Pass-Through; Inflation; Smooth transition regression models; Euro area|
|Subjects:||E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level; Inflation; Deflation
C - Mathematical and Quantitative Methods > C2 - Single Equation Models; Single Variables > C22 - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F41 - Open Economy Macroeconomics
F - International Economics > F3 - International Finance > F31 - Foreign Exchange
|Depositing User:||Nidhaleddine Ben Cheikh|
|Date Deposited:||06. Jun 2012 09:34|
|Last Modified:||13. Feb 2013 09:47|
Bailliu, J. & Fujii, E. . “Exchange Rate Pass-Through and the Inflation Environment in Industrialized Countries: An Empirical Investigation”. Bank of Canada Working Paper No. 2004-21.
Bussière, M. . “Exchange Rate Pass-Through to Trade Prices: The Role of Nonlinearities and Asymmetries”. European Central Bank Working Paper no. 822.
Choudhri, E. & Hakura, D. . “Exchange Rate Pass Through to Domestic Prices: Does the Inflationary Environment Matter?” Journal of International Money and Finance, 25, pp. 614–639.
Correa, A. & Minella, A. . “Nonlinear mechanisms of exchange rate passthrough: a Phillips curve model with threshold for Brazil”. Working Paper 122, Central Bank of Brazil.
Coughlin, C. C. & Pollard, P. S. . “Size Matters: Asymmetric Exchange Rate Pass- Through at the Industrial Level”. Federal Reserve Bank of St. Louis, Working Paper No. 2003-029C.
de Bandt, O., Banerjee, A. & Kozluk, T. . “Measuring long run exchange rate passthrough”. Banque de France, Notes d’Etudes et de Recherche No. 173.
Gagnon, J. & Ihrig, J. . “Monetary Policy and Exchange Rate Pass-Through”. International Journal of Finance and Economics, 9 (4), pp. 315–38.
Gil-Pareja, S. . “Exchange Rates and European Countries’ Export Prices: An Empirical Test for Asymmetries in Pricing to Market Behavior”. Weltwirtschaftliches Archiv, 136(1), pp. 1–23.
Goldfajn, I. & Werlang, S.R.C. . “The Pass-through from Depreciation to Inflation: A Panel Study”. Banco Central Do Brasil Working Paper, vol. 5.
Gregory, W., A. & Hansen, E., B. . “Residual-based tests for cointegration in models with regime shifts”. Journal of Econometrics, vol. 70, no 1, pp. 99–126.
Herzberg, V., Kapetanios, G. & Price, S. . “Import prices and exchange rate pass-through: Theory and evidence from the United Kingdom.” Working Paper 182, Bank of England.
Knetter, M. . “Is Export Price Adjustment Asymmetric? Evaluating the Market Share and Marketing Bottlenecks Hypotheses”. Journal of International Money and Finance, 13(1), pp. 55–70.
Luukkonen, R., Saikkonen, P. & Terasvirta, T. . “Testing Linearity against Smooth Transition AutoRegressive Models”. Biometrika, 75, pp. 491–499.
Marazzi, N. Sheets, M., Vigfusson, R., J. Faust, J. Marquez R. Martin T. Reeve, J. Gagnon & Rogers, John . “Exchange Rate Pass-through to U.S. Import Prices: some New Evidence”. Board of Governors of the Federal Reserve System, International Finance Discussion Paper, No. 832.
Marston, R. . “Pricing to Market in Japanese Manufacturing”. Journal of International Economics, 29, p. 217-36.
Nogueira Jr., R. P. & Leon-Ledesma, M. . “Exchange Rate Pass-Through Into Inflation: The Role of Asymmetries and NonLinearities”. Working paper, Studies in Economics 0801, Department of Economics, University of Kent.
Nogueira Jr., R. P. & Leon-Ledesma, M. . “Does exchange rate pass-through respond to mesures of macroecomic instabiltity?” Journal of Applied Economics, XIV, No. 1, pp. 167–180.
Olivei, G. P. . “Exchange Rates and the Prices of Manufacturing Products Imported into the United States”. New England Economic Review, First Quarter, pp. 3–18.
Przystupa, J. & Wróbel, E. . “Asymmetry of the Exchange Rate Pass-Through: An Exercise on Polish Data”. Eastern European Economics, 49 (1), pp. 30–51.
Shintani, M., A., Terada-Hagiwara & Y., Tomoyoshi . “Exchange Rate Pass-Through and Inflation: A Nonlinear Time Series Analysis”. Working Paper, Department of Economics, Vanderbilt University.
Small, I. . “The Cyclicality of Mark-ups and Profit Margins: Some Evidence for Manufacturing Services”. Working paper of the bank of england.
Taylor, J. . “Low Inflation, Pass-Through and the Pricing Power of Firms”. European Economic Review, 44, pp. 1389–1408. Teräsvirta, T. . “Specification, estimation and evaluation of smooth transition autoregressive models”. Journal of the American Statistical Association, 89, pp. 208–218.
Teräsvirta, T. . “Modelling Economic Relationship with Smooth Transition Regressions”. In Handbook of Applied Economic Statistics (D.E.A. Giles and Ullah, A. (eds), Marcel Dekker, New York.).
Teräsvirta, T. . “Smooth transition regression modelling”. In Applied time series econometrics (H. Lutkepohl and M. Kratzig, eds., Cambridge, Cambridge University Press.).
van Dijk, D., T., Teräsvirta & P., Franses . “Smooth Transition Autoregressive Models: A Survey of Recent Developments”. Econometric Reviews, 21, pp. 1–47.
Yang, J. . “Is Exchange Rate Pass-through Symmetric? Evidence from US Imports”. Applied Economics, 39, pp. 169–178.
Available Versions of this Item
- Non-linearities in exchange rate pass-through: Evidence from smooth transition models. (deposited 06. Jun 2012 09:34) [Currently Displayed]