Nonlinear exchange rate transmission in the euro area: A multivariate smooth transition regression approach

Cheikh, NB; Zaied, YB; Nguyen, P

Nonlinear exchange rate transmission in the euro area: A multivariate smooth transition regression approach

Cheikh, NB Zaied, YB Nguyen, P

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Publication Type:: Journal Article
Citation:: Economics Bulletin, 2018, 38 (3), pp. 1590 - 1602
Issue Date:: 2018-01-01

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Field	Value	Language
dc.contributor.author	Cheikh, NB	en_US
dc.contributor.author	Zaied, YB	en_US
dc.contributor.author	Nguyen, P	en_US
dc.date.issued	2018-01-01	en_US
dc.identifier.citation	Economics Bulletin, 2018, 38 (3), pp. 1590 - 1602	en_US
dc.identifier.uri	http://hdl.handle.net/10453/130371
dc.description.abstract	© 2018, Economics Bulletin. This paper examines the presence of nonlinear behavior in the exchange rate pass-through (ERPT) for a set of euro area countries. We propose to solve the endogeneity problem inherent in single-equation-based methods by implementing the family of nonlinear vector smooth transition regression (VSTR) models. Using quarterly data that span from 1980:1 to 2015:4, linearity tests reveal that the ERPT responds nonlinearly to economic growth. According to the pass-through elasticities, exchange rate transmission differs significantly between the identified economic activity regimes. However, our results underscore the presence of heterogeneous profiles across the euro area economies. For some countries, the ERPT is higher during expansions than during recessions; however, the result is reversed for others. Our findings emphasize the role of a declining ERPT, as it may foster business cycle synchronization and inflation convergence within the monetary union.	en_US
dc.relation.ispartof	Economics Bulletin	en_US
dc.subject.classification	Economics	en_US
dc.title	Nonlinear exchange rate transmission in the euro area: A multivariate smooth transition regression approach	en_US
dc.type	Journal Article
utslib.citation.volume	3	en_US
utslib.citation.volume	38	en_US
utslib.for	1402 Applied Economics	en_US
utslib.for	14 Economics	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Strength - CCG - Centre for Corporate Governance
utslib.copyright.status	open_access
pubs.issue	3	en_US
pubs.publication-status	Published	en_US
pubs.volume	38	en_US

Abstract:

© 2018, Economics Bulletin. This paper examines the presence of nonlinear behavior in the exchange rate pass-through (ERPT) for a set of euro area countries. We propose to solve the endogeneity problem inherent in single-equation-based methods by implementing the family of nonlinear vector smooth transition regression (VSTR) models. Using quarterly data that span from 1980:1 to 2015:4, linearity tests reveal that the ERPT responds nonlinearly to economic growth. According to the pass-through elasticities, exchange rate transmission differs significantly between the identified economic activity regimes. However, our results underscore the presence of heterogeneous profiles across the euro area economies. For some countries, the ERPT is higher during expansions than during recessions; however, the result is reversed for others. Our findings emphasize the role of a declining ERPT, as it may foster business cycle synchronization and inflation convergence within the monetary union.

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http://hdl.handle.net/10453/130371