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The speed of the exchange rate pass-through

Author

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  • Bonadio, Barthélémy
  • Fischer, Andreas M
  • Sauré, Philip

Abstract

This paper analyzes the speed of the exchange rate pass-through into importer and exporter unit values for a large, unanticipated, and unusually 'clean' exchange rate shock. Our shock originates from the Swiss National Bank's decision to lift the minimum exchange rate policy of one euro against 1.2 Swiss francs on January 15, 2015. This policy action resulted in a permanent appreciation of the Swiss franc by more than 11% against the euro. We analyze the response of unit values to this exchange rate shock at the daily frequency for different invoicing currencies using the universe of Switzerland's transactions-level trade data. The main finding is that the speed of the exchange rate pass-through is fast: it starts on the second working day after the exchange rate shock and reaches the medium-run pass-through after eight working days on average. Moreover, we decompose the pass-through by invoicing currencies and find strong evidence that underlying price adjustments occurred within a similar time frame. Our observations suggest that nominal rigidities play only a minor role in the face of large exchange rate shocks.

Suggested Citation

  • Bonadio, Barthélémy & Fischer, Andreas M & Sauré, Philip, 2016. "The speed of the exchange rate pass-through," CEPR Discussion Papers 11195, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:11195
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    References listed on IDEAS

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    Cited by:

    1. Fernando Alvarez & Francesco Lippi & Juan Passadore, 2017. "Are State- and Time-Dependent Models Really Different?," NBER Macroeconomics Annual, University of Chicago Press, vol. 31(1), pages 379-457.
    2. Buchholz, Manuel & von Schweinitz, Gregor & Tonzer, Lena, 2018. "Did the Swiss exchange rate shock shock the market?," IWH Discussion Papers 9/2018, Halle Institute for Economic Research (IWH).
    3. Binding, Garret & Dibiasi, Andreas, 2017. "Exchange rate uncertainty and firm investment plans evidence from Swiss survey data," Journal of Macroeconomics, Elsevier, vol. 51(C), pages 1-27.
    4. Matthias EFING & Rüdiger FAHLENBRACH & Christoph HERPFER & Philipp KRÜGER, 2015. "How Do Investors and Firms React to an Unexpected Currency Appreciation Shock?," Swiss Finance Institute Research Paper Series 15-65, Swiss Finance Institute, revised Jan 2016.
    5. Alberto Behar & Armand Fouejieu, 2016. "External Adjustment in Oil Exporters; The Role of Fiscal Policy and the Exchange Rate," IMF Working Papers 16/107, International Monetary Fund.

    More about this item

    Keywords

    daily exchange rate pass-through; large exchange rate shock; speed;

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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