Exchange rate pass-through for European Union countries

• Published in: PloS one Vol. 19; no. 8; p. e0309527
• Main Authors: Vo, Duc Hong, Vu, Nam Thanh
• Format: Journal Article
• Language: English
• Published: United States Public Library of Science 29.08.2024; Public Library of Science (PLoS)
• Subjects: Analysis; Commerce - economics; Consumer Price Index; Earth Sciences; Economic aspects; Europe; European Union; Eurozone; Exports; Foreign exchange; Foreign exchange rates; Geopolitics; Humans; Hypotheses; Imports; Inflation; Inflation (Finance); Inflation, Economic; Influence; Macroeconomics; Medicine and Health Sciences; Models, Economic; Monetary policy; People and places; Physical Sciences; Policy making; Political factors; Price level changes; Prices; Prices and rates; Productivity; Purchasing power parity; Research and Analysis Methods; Robustness; Social Sciences; Uncertainty; Uncertainty analysis; Europe
• DOI: 10.1371/journal.pone.0309527
• ISSN: 1932-6203

Exchange rate pass-through (ERPT) represents a degree to which changes in nominal exchange rates are transmitted into domestic prices. European Union (EU) countries have experienced the unprecedented inflationary pressure due to high geopolitical risk events. As such, understanding the ERPT plays a crucial role. This study provides a comprehensive and up-to-date analysis of ERPT to import prices for 16 EU countries from January 2006 to December 2022. Using the panel autoregressive distributed lag (ARDL) model, our findings confirm the linear, rather than nonlinear, ERPT pattern characterized by a diminishing trend over time in the EU countries. However, the degree of pass-through varies depending on country characteristics. Specifically, countries that are highly dependent on imports experience a larger ERPT. Furthermore, the degree of pass-through to import prices is more significant and persistent during periods of high uncertainty. These findings are robust across various robust analyses including sub periods. Our findings provide that help policymakers evaluate the trade-offs between exchange rate risks and macroeconomic stability during times of high uncertainty.