Exchange Rate Pass-Through in the Euro Area

62 Pages Posted: 3 Feb 2017

See all articles by Mariarosaria Comunale

Mariarosaria Comunale

Bank of Lithuania - Economics Department

Davor Kunovac

Croatian National Bank

Date Written: January 25, 2017

Abstract

In this paper we analyse the exchange rate pass-through (ERPT) in the euro area as a whole and for four euro area members - Germany, France, Italy and Spain. For that purpose we use Bayesian VARs with identfiication based on a combination of zero and sign restrictions. Our results emphasize that pass-through in the euro area is not constant over time - it may depend on a composition of economic shocks governing the exchange rate. Regarding the relative importance of individual shocks, it seems that pass-through is the strongest when the exchange rate movement is triggered by (relative) monetary policy shocks and the exchange rate shocks. Our shock-dependent measure of ERPT points to a large but volatile pass-through to import prices and overall very small pass-through to consumer inflation in the euro area.

Keywords: exchange rate pass-through, import prices, consumer prices, inflation, bayesian vectorautoregression

JEL Classification: E31, F3, F41

Suggested Citation

Comunale, Mariarosaria and Kunovac, Davor, Exchange Rate Pass-Through in the Euro Area (January 25, 2017). ECB Working Paper No. 2003, Available at SSRN: https://ssrn.com/abstract=2910939 or http://dx.doi.org/10.2139/ssrn.2910939

Mariarosaria Comunale (Contact Author)

Bank of Lithuania - Economics Department ( email )

Totoriu 4
Vilnius, LT-01121
Lithuania

Davor Kunovac

Croatian National Bank ( email )

Croatia

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