A panel Smooth Transition Regression Estimation of Nonlinear Exchange rate pass-through in Sub-Saharan Africa

Abstract

This paper examines the potential nonlinearity and asymmetric exchange rate pass-through in Sub-Saharan Africa (SSA) countries. The role of nonlinearities and asymmetric exchange rate pass-through (ERPT) is examined. A panel data of 8 Sub-Saharan Africa (SSA) countries was examined from 2000Q1 to 2019Q4 applying a panel smooth transition regressive (PSTR) technique that is consistent in the presence of heterogeneity and cross-sectional dependence, which allows the regression coefficients to vary both across individual countries and over time. The results rejected the hypothesis of linearity against PSTR ERPT in the SSA countries. However, the estimation result of the PSTR fails to show a significant coefficient for the parameters both in the linear and nonlinear parts of the estimation, even though the estimated standard deviation shows that the PSTR model is more efficient. The Panel regression estimation with fixed effect indicates that the exchange rate and export cost significantly impact the import price. This result echoes the downward price rigidities in the SSA countries.

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