Globalization and Passing the Exchange Rate on Consumer Prices: Applying the Panel Smooth Threshold Regression Model

The economic dimension of the globalization process has led to the convergence and economic integration of countries in the fields of business, financial markets, capital and labor. Through various channels, global economic fluctuations is transmited to the domestic economy of the countries and it can safely be said that the exchange rate is one of the most important and most sensitive variables in transferring the effects mentioned. The main question of the present research is that how much the exchange rate changes affects consumer prices during the globalization process. The present study uses data from 32 developing countries and 24 developed countries during the period from 1980 to 2016, and using the panel smooth transition model, examines the degree of exchange rate pass-through on consumer prices for globalization regimes.  In this direction the KOF Globalization Index has been used. The results showed that the rate of exchange rate pass-through in developing countries is higher than in developed countries, and also, with the transition from the first regime (low globalization) to the second regime (high globalization), the rate of exchange rate  pass-through in the developed and developed countries increases and decreases, respectively.
JEL classification: E31, O24, F62