Exchange rate pass-through into inflation: The role of asymmetries and non-linearities

Arbeitspapier

This paper investigates the empirical evidence on exchange rate pass through (ERPT) into CPI inflation for a set of emerging and developed countries. We argue that, theoretically, ERPT may be nonlinear in contrast to standard linear estimates in the literature. We use smooth transition models to investigate several possible sources of these nonlinearities. The results suggest that, although the sources of nonlinearities vary considerably across countries, they appear to be important. We find that for four countries ERPT responds nonlinearly to inflation and for three of them it responds nonlinearly to the output gap. We also find an asymmetric response of ERPT with respect to the magnitude of exchange rate changes for only two out of six countries. Finally, for some emerging markets, ERPT seems to be affected nonlinearly by measures of macroeconomic instability.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Department of Economics Discussion Paper ; No. 08,01

Classification and Topics

• Classification: Wirtschaft ; Price Level; Inflation; Deflation ; Monetary Policy ; Open Economy Macroeconomics
• Subject: Exchange rate pass-through ; smooth transition regression models ; Exchange Rate Pass-Through ; Inflation ; Geldpolitik ; Neue Makroökonomik offener Volkswirtschaften ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Nogueira Júnior, Reginaldo P. ; León-Ledesma, Miguel
• Event: Veröffentlichung
• (who): University of Kent, Department of Economics
• (where): Canterbury
• (when): 2008

Further information

• Handle: http://hdl.handle.net/10419/68099
• Last update: 10.03.2025, 11:42 AM CET