Nonlinearities In The Exchange Rate Pass-Through: The Role Of Inflation Expectations
Journal article
Anderl, C. and Caporale, G. (2022). Nonlinearities In The Exchange Rate Pass-Through: The Role Of Inflation Expectations. International Economics. 173, pp. 86-101. https://doi.org/10.1016/j.inteco.2022.10.003
Authors | Anderl, C. and Caporale, G. |
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Abstract | This paper investigates nonlinearities in the exchange rate pass-through (ERPT) to consumer and import prices by estimating a smooth transition regression model with different inflation expectations regimes for five inflation targeting countries (the UK, Canada, Australia, New Zealand and Sweden) and three non-targeters (the US, the Euro-Area and Switzerland) respectively over the period January 1993-August 2021. Both market and survey measures of inflation expectations are used as the transition variable, and the nonlinear model is also assessed against a benchmark linear model. The pass-through to both consumer and import prices is found to be stronger in the nonlinear model and in some cases is close to being complete. Also, it is stronger in regime 2, i.e. when markets and consumers expect high inflation rates in the future; this suggests that anchoring inflation expectations helps to reduce the ERPT. Finally, inflation expectations appear to affect the ERPT more in inflation targeting countries. |
Year | 2022 |
Journal | International Economics |
Journal citation | 173, pp. 86-101 |
Publisher | Elsevier |
ISSN | 2542-6869 |
Digital Object Identifier (DOI) | https://doi.org/10.1016/j.inteco.2022.10.003 |
Publication dates | |
22 Oct 2022 | |
Publication process dates | |
Accepted | 11 Oct 2022 |
Deposited | 11 Oct 2022 |
Publisher's version | License File Access Level Open |
Accepted author manuscript |
https://openresearch.lsbu.ac.uk/item/922w9
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Publisher's version
1-s2.0-S2110701722000798-main (1).pdf | ||
License: CC BY 4.0 | ||
File access level: Open |
Accepted author manuscript
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