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Exchange Rates and Prices: Evidence from the 2015 Swiss Franc Appreciation

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  • Auer, Raphael
  • Burstein, Ariel
  • Lein, Sarah M.

    () (University of Basel)

Abstract

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.

Suggested Citation

  • Auer, Raphael & Burstein, Ariel & Lein, Sarah M., 2018. "Exchange Rates and Prices: Evidence from the 2015 Swiss Franc Appreciation," Working papers 2018/23, Faculty of Business and Economics - University of Basel.
  • Handle: RePEc:bsl:wpaper:2018/23
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    References listed on IDEAS

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    Cited by:

    1. Breinlich, Holger & Leromain, Elsa & Novy, Dennis & Sampson, Thomas, 2019. "Exchange Rates and Consumer Prices: Evidence from Brexit," CEPR Discussion Papers 14176, C.E.P.R. Discussion Papers.
    2. Xavier Jaravel & Erick Sager, 2019. "What are the price effects of trade? Evidence from the US and implications for quantitative trade models," CEP Discussion Papers dp1642, Centre for Economic Performance, LSE.
    3. Chen, Natalie & Chung, Wanyu & Novy, Dennis, 2018. "Vehicle Currency Pricing and Exchange Rate Pass-Through," CEPR Discussion Papers 13085, C.E.P.R. Discussion Papers.
    4. Costa, Rui & Dhingra, Swati & Machin, Stephen, 2019. "Trade and Worker Deskilling," CEPR Discussion Papers 13768, C.E.P.R. Discussion Papers.
    5. Raphael Auer & Ariel Burstein & Katharina Erhardt & Sarah M. Lein, 2019. "Exports and Invoicing: Evidence from the 2015 Swiss Franc Appreciation," AEA Papers and Proceedings, American Economic Association, vol. 109, pages 533-538, May.
    6. Braun, Rahel & Lein, Sarah M., 2019. "Sources of Bias in Inflation Rates and Implications for Inflation Dynamics," Working papers 2019/02, Faculty of Business and Economics - University of Basel.
    7. Fernandes, Ana & Winters, L. Alan, 2018. "The effect of exchange rate shocks on firm-level exports: evidence from the Brexit vote," CEPR Discussion Papers 13253, C.E.P.R. Discussion Papers.
    8. Mary Amiti & Oleg Itskhoki & Jozef Konings, 2018. "Dominant currencies How firms choose currency invoicing and why it matters," Working Paper Research 353, National Bank of Belgium.
    9. Breinlich, Holger & Leromain, Elsa & Novy, Dennis & Sampson, Thomas, 2019. "Exchange Rates and Consumer Prices: Evidence from Brexit," CEPR Discussion Papers 14176, C.E.P.R. Discussion Papers.
    10. Santiago E. Alvarez & Sarah M. Lein, 2020. "Tracking inflation on a daily basis," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 156(1), pages 1-13, December.
    11. Giuliano, Fernando & Luttini, Emiliano, 2020. "Import prices and invoice currency: Evidence from Chile," Journal of International Money and Finance, Elsevier, vol. 106(C).
    12. Fischer, Andreas M & Yesin, Pinar, 2019. "Foreign currency loan conversions and currency mismatches," CEPR Discussion Papers 13923, C.E.P.R. Discussion Papers.
    13. Konstantin Egorov & Dmitry Mukhin, 2020. "Optimal Policy under Dollar Pricing," Working Papers w0261, New Economic School (NES).
    14. Chen, Natalie & Chung, Wanyu & Novy, Dennis, 2018. "Vehicle Currency Pricing and Exchange Rate Pass-Through," CEPR Discussion Papers 13085, C.E.P.R. Discussion Papers.
    15. Jaravel, Xavier & Sager, Erick, 2019. "What are the price effects of trade? Evidence from the US for quantitative trade models," LSE Research Online Documents on Economics 103402, London School of Economics and Political Science, LSE Library.

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    More about this item

    Keywords

    Large exchange rate shocks; exchange rate pass-through; invoicing currency; expenditure switching; price-setting; nominal and real rigidities; monetary policy;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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