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Exchange Rate Transmission and Export Activity at the Firm Level

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    Abstract

    This paper analyses how exchange rate shocks are transmitted at the firm level and establishes a nexus to firm-level export activity. Using precise survey data from a sample of Swiss firms, I find that an appreciation increases the probability of a decrease in firm-level costs, prices and profits. Exchange rate movements are passed through to import prices, absorbed in firm selling prices and lead to adjustments in firm profits. The pattern is non-linear across firms with a varying degree of international exposure. The likelihood of adjustments is increasing in firm-level export share in total turnover. I also show that exchange rate variability affects adjustment probabilities. The analysis suggests that Swiss firms take prices as given. Exchange rate shocks are absorbed through a reduction in both costs and prices, however, these adjustments are not proportional such that overall profits decline during appreciation periods.

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    File URL: https://kofportal.kof.ethz.ch/publications/download/2883/wp_331_2.pdf
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    Bibliographic Info

    Paper provided by KOF Swiss Economic Institute, ETH Zurich in its series KOF Working papers with number 13-331.

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    Length: 37 pages
    Date of creation: Feb 2013
    Date of revision:
    Handle: RePEc:kof:wpskof:13-331

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    Keywords: exchange rate; exchange rate pass-through; market structure; firm-level data; costs; local prices; profits; exports;

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    1. Lein, Sarah M., 2010. "When do firms adjust prices? Evidence from micro panel data," Journal of Monetary Economics, Elsevier, Elsevier, vol. 57(6), pages 696-715, September.
    2. Emi Nakamura & Jón Steinsson, 2008. "Five Facts about Prices: A Reevaluation of Menu Cost Models," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 123(4), pages 1415-1464, November.
    3. Andreas M. Fischer & Matthias Lutz & Manuel Wälti, 2007. "Who Prices Locally? Survey Evidence of Swiss Exporters," Working Papers 2007-16, Swiss National Bank.
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    7. Luis J. Álvarez & Emmanuel Dhyne & Marco Hoeberichts & C. Kwapil & Hervé Le Bihan & Patrick Lünnemann & Fernando Martins & R. Sabbatini & H. Stahl & Philip Vermeulen & Jouko Vilmunen, 2006. "Sticky Prices in The Euro Area: a Summary of New Micro Evidence," Working Papers, Banco de Portugal, Economics and Research Department w200605, Banco de Portugal, Economics and Research Department.
    8. Brodsky, David A., 1984. "Fixed versus flexible exchange rates and the measurement of exchange rate instability," Journal of International Economics, Elsevier, Elsevier, vol. 16(3-4), pages 295-306, May.
    9. Sarah Marit Lein & Eva Köberl, 2009. "Capacity Utilisation, Constraintes and Price Adjustments under the Microscope," Working Papers 2009-06, Swiss National Bank.
    10. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 84(6), pages 1161-76, December.
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    13. Campa, José Manuel & Goldberg, Linda S, 2004. "Exchange Rate Pass-Through into Import Prices," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4391, C.E.P.R. Discussion Papers.
    14. Gita Gopinath & Oleg Itskhoki & Roberto Rigobon, 2010. "Currency Choice and Exchange Rate Pass-Through," American Economic Review, American Economic Association, American Economic Association, vol. 100(1), pages 304-36, March.
    15. Francesco Nucci & Alberto Franco Pozzolo, . "The Exchange Rate, Employment and Hours: What Firm-Level Data Say," Working Papers, Department of the Treasury, Ministry of the Economy and of Finance 9, Department of the Treasury, Ministry of the Economy and of Finance.
    16. repec:nbr:nberre:0126 is not listed on IDEAS
    17. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 88(1), pages 1-23, February.
    18. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, Elsevier, vol. 12(3), pages 383-398, September.
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