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Exchange-rate pass-through, role of currency for allocations in international trade

Research Project
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01.07.2016
 - 01.07.2020

The removal of the lower bound on the EUR/CHF exchange rate in January 2015 provides a unique setting to study the implications of a large and sudden appreciation in an otherwise stable macroeconomic environment. Using transaction-level data on non-durable goods purchases by Swiss consumers, we measure the response of border and consumer retail prices to the CHF appreciation and how household expenditures responded to these price changes. Consumer prices of imported goods and of competing Swiss-produced goods fell by more in product categories with larger reductions in border prices and a lower share of CHF-invoiced border prices. These price changes resulted in substantial expenditure switching between imported and Swiss-produced goods. While the frequency of import retail price reductions rose in the aftermath of the appreciation, the average size of these price reductions fell (and more so in product categories with larger border price declines and a lower share of CHF-invoiced border prices), contributing to low pass-through into import prices. In a separate sub-project, we also study the allocative role of currency of invoicing on exports and find similar dynamics. We furthermore show that exports in larger sectors are less sensitive to exchange rate fluctuations than rather small sectors and that thos sectors, that are less sensitive, have grown over time in Switzerland.

Collaborations & Cooperations

2020 - Participation or Organization of Collaborations on a national level
Auer, Raphael, Economist, Bank of International Settlements, Research cooperation
2020 - Participation or Organization of Collaborations on an international level
Burstein, Ariel, Professor, UCLA, Research cooperation

Publications

Auer, Raphael, Burstein, Ariel and Lein, Sarah (2021) ‘Exchange Rates and Prices: Evidence from the 2015 Swiss Franc Appreciation’, American economic review, 111(2), pp. 652–686. Available at: https://doi.org/10.1257/aer.20181415.

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Auer, Raphael et al. (2019) ‘Exports and Invoicing: Evidence from the 2015 Swiss Franc Appreciation’, AEA Papers and Proceedings, 109, pp. 533–538. Available at: https://doi.org/10.1257/pandp.20191008.

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Auer, Raphael, Burstein, Ariel and Lein, Sarah M. (2018) ‘Exchange Rates and Prices: Evidence from the 2015 Swiss Franc Appreciation’, WWZ Working Papers. WWZ (WWZ Working Papers, 23).

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Hanslin Grossmann, Sandra, Lein, Sarah M. and Schmidt, Caroline (2016) ‘Exchange rate and foreign GDP elasticities of Swiss exports across sectors and destination countries’, Applied Economics, 48(57), pp. 5546–5562. Available at: https://doi.org/10.1080/00036846.2016.1181828.

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Members (1)

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Sarah Lein

Principal Investigator