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Journal of Economic Integration 2018 June;33(2) :1234-1261.
DOI: https://doi.org/10.11130/jei.2018.33.2.1235
Nonlinear Exchange Rate Pass-Through : Does Business Cycle Matter?
Nidhaleddine Ben Cheikh
Younes Ben Zaied
Houssam Bouzgarrou and 
Pascal Nguyen 
ESSCA School of Management, Angers, France
ESSEC Business School, Cergy-Pontoise, France
University of Sousse - ISG, Sousse, Tunisia
ESDES, The Business School of UCLy, France
Corresponding Author: Nidhaleddine Ben Cheikh ,Tel: +33 174345278, Fax: +33 241735710, Email: nbcheikh@gmail.com
Copyright ©2018 Journal of Economic Integration
ABSTRACT
This paper investigates the nonlinear dynamics in the Exchange Rate PassThrough of the Euro area. We implement the class of logistic smooth transition models to explore the role of the business cycle in driving nonlinearity. Using quarterly data over the period of January 1980 ~ April 2015, our results provide strong evidence of nonlinearity in 7 out of 10 Eurozone countries. We show that the exchange rate transmission to inflation respond to the economic activity in the nonlinear manner, that is, exchange rate pass-through is higher during expansion than recession periods. By monitoring the different patterns of growth and exchange rate pass-through, European monetary authorities could enhance inflation convergence within the Euro area.

JEL Classification
C22: Time Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
E31: Price Level; Inflation; Deflation
F31: Foreign Exchange
Keywords: Exchange Rate Pass-Through | Business Cycle | Euro Area | Smooth Transition Regression Models
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