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

Author

Listed:
  • Ben Cheikh, Nidhaleddine

    (ESSCA School of Management)

  • Ben Zaied, Younes

    (ESSEC Business School)

  • Bouzgarrou, Houssam

    (University of Sousse)

  • Nguyen, Pascal

    (ESDES, The Business School of UCLy)

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.

Suggested Citation

  • Ben Cheikh, Nidhaleddine & Ben Zaied, Younes & Bouzgarrou, Houssam & Nguyen, Pascal, 2018. "Nonlinear Exchange Rate Pass-Through: Does Business Cycle Matter?," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 33(2), pages 1234-1260.
    • Handle: RePEc:ris:integr:0732
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    Citations

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    Cited by:

    1. Tomoyuki Yagi & Yoshiyuki Kurachi & Masato Takahashi & Kotone Yamada & Hiroshi Kawata, 2022. "Pass-Through of Cost-Push Pressures to Consumer Prices," Bank of Japan Working Paper Series 22-E-17, Bank of Japan.
    2. Goodwin, Barry K. & Holt, Matthew T. & Prestemon, Jeffrey P., 2019. "Nonlinear exchange rate pass-through in timber products: The case of oriented strand board in Canada and the United States," The North American Journal of Economics and Finance, Elsevier, vol. 50(C).
    3. Takatoshi Sasaki & Hiroki Yamamoto & Jouchi Nakajima, 2023. "Nonlinear Input Cost Pass-through to Consumer Prices: A Threshold Approach," Bank of Japan Working Paper Series 23-E-9, Bank of Japan.
    4. Roberta Colavecchio & Ieva Rubene, 2019. "Non-linear exchange rate pass-through to euro area inflation: A local projection approach," BCL working papers 138, Central Bank of Luxembourg.
    5. Kuznetsov, Aleksei & Berdigulova, Aigul, 2019. "EDB Special report 2019. Exchange rate pass-through effects on inflation in EDB Member Countries," Working Papers 2019-7, Eurasian Development Bank, Chief Economist Group.
    6. Amjad Fakher & Muhammad Akbar & Rana Ejaz Ali Khan, 2021. "Dynamics of Relationship Between Macroeconomic Fundamentals and Exchange Rate: A Comparison of Advanced and Least Developed Countries," Asian Journal of Economic Modelling, Asian Economic and Social Society, vol. 9(2), pages 166-178, June.
    7. Nguyen, Hoai Thi Thanh & Tram, Huong Thi Xuan & Nguyen, Linh Thi Thuy, 2023. "Interest rates and systemic risk:Evidence from the Vietnamese economy," The Journal of Economic Asymmetries, Elsevier, vol. 27(C).
    8. Ortega, Eva & Osbat, Chiara, 2020. "Exchange rate pass-through in the euro area and EU countries," Occasional Paper Series 241, European Central Bank.
    9. Pradeep, Siddhartha, 2022. "Impact of diesel price reforms on asymmetricity of oil price pass-through to inflation: Indian perspective," The Journal of Economic Asymmetries, Elsevier, vol. 26(C).
    10. Javed Ahmad Bhat & Md Zulquar Nain & Sajad Ahmad Bhat, 2024. "Exchange rate pass‐through to consumer prices in India – nonlinear evidence from a smooth transition model," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(1), pages 927-942, January.

    More about this item

    Keywords

    Exchange Rate Pass-Through; Business Cycle; Euro Area; Smooth Transition; Regression Models;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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