Nonlinear Exchange Rate Pass-Through: Does Business Cycle Matter?

Nidhaleddine Ben Cheikh (), Ben Zaied Younes (), Houssam Bouzgarrou () and Pascal Nguyen

Journal of Economic Integration, 2018, vol. 33, issue 2, 1234-1260

Abstract: This paper investigates the nonlinear dynamics in the Exchange Rate Pass-Through of the Euro area. We implement the class of logistic smooth transition models to explore the role of the business cycle in driving nonlinearity. Using quarterly data over the period of January 1980 ~ April 2015, our results provide strong evidence of nonlinearity in 7 out of 10 Eurozone countries. We show that the exchange rate transmission to inflation respond to the economic activity in the nonlinear manner, that is, exchange rate pass-through is higher during expansion than recession periods. By monitoring the different patterns of growth and exchange rate pass-through, European monetary authorities could enhance inflation convergence within the Euro area.

Keywords: Exchange Rate Pass-Through; Business Cycle; Euro Area; Smooth Transition; Regression Models (search for similar items in EconPapers)
JEL-codes: C22 E31 F31 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:ris:integr:0732

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