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Exchange rate pass-through in the euro area

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  • Comunale, Mariarosaria
  • Kunovac, Davor

Abstract

In this paper we analyse the exchange rate pass-through (ERPT) in the euro area as a whole and for four euro area members - Germany, France, Italy and Spain. For that purpose we use Bayesian VARs with identi?cation based on a combination of zero and sign restrictions. Our results emphasize that pass-through in the euro area is not constant over time - it may depend on a composition of economic shocks governing the exchange rate. Regarding the relative importance of individual shocks, it seems that pass-through is the strongest when the exchange rate movement is triggered by (relative) monetary policy shocks and the exchange rate shocks. Our shock-dependent measure of ERPT points to a large but volatile pass-through to import prices and overall very small pass-through to consumer in?ation in the euro area. JEL Classification: E31, F3, F41

Suggested Citation

  • Comunale, Mariarosaria & Kunovac, Davor, 2017. "Exchange rate pass-through in the euro area," Working Paper Series 2003, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20172003
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    More about this item

    Keywords

    Bayesian vector autoregression; consumer prices; exchange rate pass-through; import prices; inflation;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F3 - International Economics - - International Finance
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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