Nonlinear mechanism of the exchange rate pass-through: Does business cycle matter?

Ben Cheikh, Nidhaleddine (2012): Nonlinear mechanism of the exchange rate pass-through: Does business cycle matter?

Abstract

This paper examines the presence of nonlinear mechanism in the exchange rate pass-through (ERPT) to CPI inflation for 12 euro area (EA) countries. Using logistic smooth transition models, we explore the existence of nonlinearity with respect to economic activity along the business cycle. Our results reveal that pass-through 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
• Language: English
• Keywords: Exchange Rate Pass-Through; Inflation; Smooth Transition Regression
• 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 ; Diffusion Processes; F - International Economics > F3 - International Finance > F31 - Foreign Exchange

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