 Nonlinearities in the exchange rate pass-through: The role of inflation expectationsChristina Anderl and Guglielmo Maria Caporale International Economics, 2023, vol. 173, issue C, 86-101 Abstract: This paper investigates nonlinearities in the exchange rate pass-through (ERPT) to consumer and import prices by estimating a smooth transition regression model with different inflation expectations regimes for five inflation targeting countries (the UK, Canada, Australia, New Zealand and Sweden) and three non-targeters (the US, the Euro-Area and Switzerland) respectively over the period January 1993–August 2021. Both market and survey measures of inflation expectations are used as the transition variable, and the nonlinear model is also assessed against a benchmark linear model. The pass-through to both consumer and import prices is found to be stronger in the nonlinear model and in some cases is close to being complete. Also, it is stronger in regime 2, i.e., when markets and consumers expect high inflation rates in the future; this suggests that anchoring inflation expectations helps to reduce the ERPT. Finally, inflation expectations appear to affect the ERPT more in inflation targeting countries. Keywords: Exchange rate pass-through; Smooth transition regression; Nonlinearities; Inflation expectations (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:inteco:v:173:y:2023:i:c:p:86-101 DOI: 10.1016/j.inteco.2022.10.003 Access Statistics for this article International Economics is currently edited by Valerie Mignon and Marcelo Olarreaga More articles in International Economics from Elsevier |
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