Asymmetric exchange rate pass-through in the Euro area: New evidence from smooth transition models

Nidhaleddine Ben Cheikh ()

No 2012-36, Economics Discussion Papers from Kiel Institute for the World Economy (IfW Kiel)

Abstract: This paper examines the presence of asymmetric behavior in exchange rate pass-through (ERPT) to CPI inflation in 12 euro area (EA) countries. Using a class of nonlinear smooth transition models, we test for asymmetry with respect to the direction and the magnitude of exchange rate changes. On the one hand, we find only 5 out of 12 EA countries showing asymmetric pass-through to exchange rate appreciations and depreciations. Results are somewhat mixed with no clear evidence about the direction of asymmetry. On the other hand, we report strong evidence that ERPT responds asymmetrically to the size of exchange rate changes as a result of presence of menu costs. The degree of ERPT is found to be higher for large exchange rate changes than for small ones in 9 out of 12 EA countries.

Keywords: exchange rate pass-through; inflation; smooth transition regression models; euro area (search for similar items in EconPapers)
JEL-codes: C22 E31 F31 F41 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-eec, nep-int, nep-mon and nep-opm
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Citations: View citations in EconPapers (23)

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http://www.economics-ejournal.org/economics/discussionpapers/2012-36
https://www.econstor.eu/bitstream/10419/60489/1/720846145.pdf (application/pdf)

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Working Paper: Asymmetric exchange rate pass-through in the Euro area: new evidence from smooth transition models (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwedp:201236

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