Non-linearities in exchange rate pass-through: Evidence from smooth transition models

Nidhaleddine Ben Cheikh ()

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Abstract: This paper examines the presence of non-linear mechanism in the exchange rate pass-through (ERPT) to CPI inflation for 12 euro area (EA) countries. Using smooth transition regression (STR) model, we explore the existence of non-linearities with respect to the inflation environment. We find strong evidence that pass-through respond non-linearly to inflation level for 8 out of 12 EA countries, that is, the transmission of exchange rate is higher when inflation rate surpass some threshold. Our results provide a broad support to the hypothesis suggested by Taylor (2000) that ERPT is decreasing in a lower and more stable inflation environment.

Keywords: Exchange rate pass-through; inflation; smooth transition regression models; Euro area (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (21)

Published in Economics Bulletin, 2012, 32 (3), pp.2530-2545

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Journal Article: Non-linearities in exchange rate pass-through: Evidence from smooth transition models (2012)
Working Paper: Non-linearities in exchange rate pass-through: Evidence from smooth transition models (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-00761018

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