Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/121126
Authors: 
Cheikh, Nidhaleddine Ben
Year of Publication: 
2013
Series/Report no.: 
FIW Working Paper 123
Abstract: 
This paper investigates whether the exchange rate pass-through (ERPT) to CPI inflation is a nonlinear phenomenon for five heavily indebted euro area (EA) countries, namely the so-called GIIPS group (Greece, Ireland, Italy, Portugal, and Spain). Using logistic smooth transition models, we explore the existence of nonlinearity with respect to sovereign bond yield spreads (versus German) as an indicator of confidence crisis/macroeconomic instability. Our results provide strong evidence that the extent of ERPT is higher in periods of macroeconomic distress, i.e. when sovereign bond yield spreads exceed some threshold. For all the GIIPS countries, we reveal that the increasing of macroeconomic instability and the loss of confidence during the recent sovereign debt crisis has entailed a higher sensibility of CPI inflation to exchange rate movements.
Subjects: 
Exchange Rate Pass-Through
Inflation
Smooth Transition Regression
JEL: 
C22
E31
F31
Document Type: 
Working Paper

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