Asymmetric and non-linear pass-through effect of exchange rate on inflation: Evidence from the Fragile Five countries

Akbas Y. E., RADULESKU M., Şit A., Belascu L.

Journal of Policy Modeling, 2026 (SSCI, Scopus) identifier

  • Publication Type: Article / Article
  • Publication Date: 2026
  • Doi Number: 10.1016/j.jpolmod.2026.02.007
  • Journal Name: Journal of Policy Modeling
  • Journal Indexes: Social Sciences Citation Index (SSCI), Scopus, IBZ Online, ABI/INFORM, EconLit, Political Science Complete, Public Affairs Index
  • Keywords: Asymmetry, Exchange rate, Fragile Five, Inflation, Interest rate, Non-linearity, Pass-through effect
  • Azerbaijan State University of Economics (UNEC) Affiliated: Yes

Abstract

This study aims to analyze the possible asymmetric and non-linear effects of exchange rate and interest rate on different inflation components in the Fragile Five countries over the period 1980–2023 by using the panel smooth transition regression and panel non-linear ARDL model. As a result of the analysis, in pass-through model where the exchange rate is the threshold variable, it is found that the exchange rate positively affects the consumer prices index and the producer prices index in the high exchange rate regime, but the impact on the consumer prices index is higher. On the other hand, in model where the threshold variable is the interest rate, it is determined that the interest rate negatively affects the consumer prices index and the producer prices index in both the high-interest rate regime and the low-interest rate regime, and this effect is higher on the consumer prices index.