Exchange Rate Pass-Through in the Euro Area

Published: 2/2/2017
Publication Working Papers
Issue W - 46
Authors Mariarosaria Comunale and Davor Kunovac
Date January 2017
JEL E31, F3, F41
ISSN 1334-0131


Exchange rate pass-through, import prices, consumer prices, inflation, bayesian vector autoregression


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 identi…cation 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.