Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/60489 
Year of Publication: 
2012
Series/Report no.: 
Economics Discussion Papers No. 2012-36
Publisher: 
Kiel Institute for the World Economy (IfW), Kiel
Abstract: 
This paper examines the presence of asymmetric behavior in exchange rate pass-through (ERPT) to CPI inflation in 12 euro area (EA) countries. Using a class of nonlinear smooth transition models, we test for asymmetry with respect to the direction and the magnitude of exchange rate changes. On the one hand, we find only 5 out of 12 EA countries showing asymmetric pass-through to exchange rate appreciations and depreciations. Results are somewhat mixed with no clear evidence about the direction of asymmetry. On the other hand, we report strong evidence that ERPT responds asymmetrically to the size of exchange rate changes as a result of presence of menu costs. The degree of ERPT is found to be higher for large exchange rate changes than for small ones in 9 out of 12 EA countries.
Subjects: 
exchange rate pass-through
inflation
smooth transition regression models
euro area
JEL: 
C22
E31
F31
F41
Creative Commons License: 
cc-by-nc Logo
Document Type: 
Working Paper

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