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Exchange Rate Transmission and Export Activity at the Firm Level

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    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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    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
    Handle: RePEc:kof:wpskof:13-331
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    7. repec:hrv:faseco:30703874 is not listed on IDEAS
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