Revisiting the pass-through of exchange rate in the transition economies: New evidence from new EU member states

Nidhaleddine Ben Cheikh () and Younes Ben Zaied

Journal of International Money and Finance, 2020, vol. 100, issue C

Abstract: This paper revisits the exchange rate pass-through (ERPT) for a set of transition economies, namely for 10 new EU Member States (NMS), over the period 1996–2015. As the transition process has entailed a deep transformation in their economies and institutions, the extent of pass-through is expected to be regime-dependent on this changing macroeconomic environment. We propose to implement a nonlinear panel smooth transition regression (PSTR) approach, where transitional factors related to EU accession are captured properly from the data. Our empirical results suggest that the inflation regime is the main macroeconomic driver of the extent of ERPT. When inflation levels exceed the threshold of 4.56%, i.e., within a high-inflation environment, the degree of pass-through is higher and reaches a full ERPT. However, with the shift towards a stable and low-inflation regime, i.e., when inflation levels are below a threshold of 4.56%, the extent of pass-through significantly declines in the NMS group. Our findings shed further light on how the credibility gained through the commitment to euro area membership is beneficial and would ensure better control of inflation.

Keywords: Exchange rate pass-through; Import prices; Transition economies; Nonlinear panel data techniques (search for similar items in EconPapers)
JEL-codes: C23 E31 F31 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0261560618302389
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:100:y:2020:i:c:s0261560618302389

DOI: 10.1016/j.jimonfin.2019.102093

Access Statistics for this article

Journal of International Money and Finance is currently edited by J. R. Lothian

More articles in Journal of International Money and Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().