Bank of Lithuania
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2017-01-27

Exchange rate pass-through in the Euro Area

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Also published in the ECB Working Paper Series


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 identification 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.

JEL Codes: E31, F3, F41.

The views expressed are those of the author(s) and do not necessarily represent those of the Bank of Lithuania.

Mariarosaria Comunale, Davor Kunovac, Exchange rate pass-through, import prices, consumer prices, inflation, bayesian vector autoregression