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Endogenous Product Adjustment and Exchange Rate Pass-Through

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  • Freitag, Andreas
  • Lein, Sarah

Abstract

We document how product quality responds to exchange rate movements and quantify the extent to which these quality changes affect the aggregate pass-through into export prices. We analyze the substantial sudden appreciation of the Swiss franc post removal of the 1.20-CHF-per-euro lower bound in 2015 using export data representing a large share of the universe of goods exports from Switzerland. We find that firms upgrade the quality of their products after the appreciation. Furthermore, they disproportionately remove lower-quality products from their product ranges. This quality upgrading and quality sorting effect accounts for a substantial share of the total pass-through one year after the appreciation. We cross-check our results with the microdata underlying the Swiss export price index, which includes an adjustment factor for quality based on firms' reported product replacements, and obtain similar results.

Suggested Citation

  • Freitag, Andreas & Lein, Sarah, 2022. "Endogenous Product Adjustment and Exchange Rate Pass-Through," CEPR Discussion Papers 17250, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:17250
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    Cited by:

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    2. Matthieu Crozet & Julian Hinz & Federico Trionfetti, 2023. "Exchange Rate Pass-Around," Working Papers hal-04150476, HAL.
    3. Romain Baeriswyl & Alex Oktay & Marc-Antoine Ramelet, 2023. "Exchange rate shocks and equity prices: the role of currency denomination," Working Papers 2023-05, Swiss National Bank.
    4. Andreas Brunhart & Martin Geiger, 2025. "Sectoral effects of exchange rate shocks: goods exports and the appreciation of the Swiss Franc in 2015," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 161(1), pages 1-25, December.
    5. Alex Oktay, 2022. "Heterogeneity in the exchange rate pass-through to consumer prices: the Swiss franc appreciation of 2015," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 158(1), pages 1-20, December.
    6. Martin Brown & Daniel Hoechle & Lizet Alejandra Perez Cortes & Markus Schmid, 2025. "Monetary Policy Wealth Effects: Evidence from the 2015 Swiss Franc Shock," Working Papers 25.06, Swiss National Bank, Study Center Gerzensee.
    7. Akin A. Cilekoglu, 2023. "“Export Destination and Firm Upgrading: Evidence from Spain”," AQR Working Papers 202303, University of Barcelona, Regional Quantitative Analysis Group, revised May 2023.
    8. Apaitan, Tosapol & Manopimoke, Pym & Nookhwun, Nuwat & Pattararangrong, Jettawat, 2024. "Heterogeneity in exchange rate pass-through to import prices in Thailand: Evidence from micro data," Journal of International Money and Finance, Elsevier, vol. 149(C).
    9. Zhang, Wenqian & Wei, Hao, 2025. "The impact of RMB exchange rate changes on the prices of imported products by Chinese firms," Economic Analysis and Policy, Elsevier, vol. 85(C), pages 464-478.
    10. Akin A. Cilekoglu, 2023. ""Export Destination and Firm Upgrading: Evidence from Spain"," IREA Working Papers 202306, University of Barcelona, Research Institute of Applied Economics, revised May 2023.
    11. Luca Macedoni & Rui Zhang & Frederic Warzynski, 2024. "Fight or Flight? How Do Firms Adapt Their Product Mix in Response to Demand and Competition," CESifo Working Paper Series 11144, CESifo.

    More about this item

    Keywords

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    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • 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
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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