Three essays in international macroeconomics

This paper provides an empirical study of the asymmetrical spillovers of the euro-US dollar exchange rate on inflation in the euro zone. We divide the euro zone members in two groups of countries: "core" (closely related to Germany) and "periphery", testing if the euro-US dollar exchange rate is still able to give a different impact on the groups’ performance as in the past US dollar-deutschmark polarization phenomenon. Using a dynamic panel data framework based on an exchange rate pass-through model, we estimate the elasticities of the two groups by system IV-GMM and the common correlated effects mean group estimator, testing for the asymmetry. Estimating the model with the first type of method, the exchange rate pass-through coefficient is always significant but the asymmetry between the groups is rejected. Using the common correlated effects mean group estimator we find that the coefficient is significantly negative only for core countries and the hypothesis of asymmetry is not rejected. Note that the significance disappears if we control for the first three years of EMU, but the coefficients for core and periphery have opposite sign in any case. Instead, other unobservable factors, representing global events or spillovers effects, play a relevant role in all the specifications. Based on these results, we cannot conclude that the euro-US dollar is the only key factor in determining the asymmetry in inflation between core and periphery and the hypothesis of a new polarization cannot be fully accepted.