Nonlinear mechanism of the exchange rate pass-through: Does business cycle matter?

This paper examines the presence of nonlinear mechanism in the exchange rate pass-through (ERPT) to CPI inflation for 12 euro area (EA) countries. Using logistic smooth transition models, we explore the existence of nonlinearity with respect to economic activity along the business cycle. Our results reveal that pass-through depends positively on economic activity, that is, when real GDP is growing above some threshold, the extent of ERPT becomes higher