Ben Cheikh, Nidhaleddine (2012): Nonlinear mechanism of the exchange rate pass-through: Does business cycle matter?
This is the latest version of this item.
Download (453kB) | Preview
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 provide a strong evidence of nonlinearity in 6 out of 12 EA countries with significant differences in the degree of ERPT between the periods of expansion and recession. However, we find no clear direction in this regime-dependence of pass-through to business cycle. In some countries, ERPT is higher during expansions than in recessions; however, in other countries, this result is reversed. These cross-country differences in the nonlinear mechanism of pass-through would have important implications for the design of monetary policy and the control of inflation in the EA context.
|Item Type:||MPRA Paper|
|Original Title:||Nonlinear mechanism of the exchange rate pass-through: Does business cycle matter?|
|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
|Depositing User:||Nidhaleddine Ben Cheikh|
|Date Deposited:||13. Sep 2012 22:49|
|Last Modified:||21. Oct 2015 04:21|
Bailliu, J. & Fujii, E. . “Exchange Rate Pass-Through and the Inflation Environment in Industrialized Countries: An Empirical Investigation”. Working Paper No. 2004-21, Bank of Canada.
Correa, A. & Minella, A. . “Nonlinear mechanisms of exchange rate passthrough: a Phillips curve model with threshold for Brazil”. Working Paper No. 122, Central Bank of Brazil.
Coughlin, C. C. & Pollard, P. S. . “Size Matters: Asymmetric Exchange Rate Pass- Through at the Industrial Level”. Working Paper No. 2003-029C, Federal Reserve Bank of St. Louis.
de Bandt, O., Banerjee, A. & Kozluk, T. . “Measuring long run exchange rate pass-through”. Economics: The Open-Access, Open-Assessment E-Journal, 2 (2008-6).
Eitrheim, Ø. & Teräsvirta, T. . “Testing the adequacy of smooth transition autoregressive models”. Journal of Econometrics, Vol. 74, pp. 59–76.
García, J., C. & Restrepo, E., J. . “Price inflation and Exchange rate passthrough in Chile”. Working Paper No. 128, Central bank of Chile.
Goldberg, P.K. & Knetter, M. . “Goods Prices and Exchange Rates: What Have We Learned?” Journal of Economic Literature, 35, pp. 1243–72.
Goldfajn, I. & Werlang, S.R.C. . “The Pass-through from Depreciation to Inflation: A Panel Study”. Working Paper No. 423, Banco Central Do Brasil.
Herzberg, V., Kapetanios, G. & Price, S. . “Import prices and exchange rate pass-through: Theory and evidence from the United Kingdom.” Working Paper No. 182, Bank of England.
Luukkonen, R., Saikkonen, P. & Terasvirta, T. . “Testing Linearity against Smooth Transition AutoRegressive Models”. Biometrika, 75, pp. 491–499.
Marazzi, M., Sheets, N., Vigfusson, R., Faust, J., Gagnon, J., Marquez, J., Martin, R., Reeve, T. & Rogers, John . “Exchange Rate Pass-through to U.S. Import Prices: some New Evidence”. International Finance Discussion Paper No. 832, Board of Governors of the Federal Reserve System.
Nogueira Jr., R. P. & Leon-Ledesma, M. . “Exchange Rate Pass-Through Into Inflation: The Role of Asymmetries and NonLinearities”. Studies in Economics No. 0801, Department of Economics, University of Kent.
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.
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 D.E.A. Giles & A. Ullah (Eds.), Handbook of Applied Economic Statistics (Marcel Dekker, New York).
van Dijk, D., Teräsvirta, T. & Franses, P. . “Smooth Transition Autoregressive Models: A Survey of Recent Developments”. Econometric Reviews, 21, pp. 1–47.
Available Versions of this Item
Nonlinear mechanism of the exchange rate pass-through: Does business cycle matter? (deposited 11. Sep 2012 11:17)
- Nonlinear mechanism of the exchange rate pass-through: Does business cycle matter? (deposited 13. Sep 2012 22:49) [Currently Displayed]