Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/68099 
Year of Publication: 
2008
Series/Report no.: 
Department of Economics Discussion Paper No. 08,01
Publisher: 
University of Kent, Department of Economics, Canterbury
Abstract: 
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.
Subjects: 
Exchange rate pass-through
smooth transition regression models
JEL: 
E31
E52
F41
Document Type: 
Working Paper

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