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"Natural hedging" of exchange rate risk: The role of imported input prices

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Listed author(s):
  • Fauceglia, Dario
  • Shingal, Anirudh
  • Wermelinger, Martin

Abstract

Using disaggregated quarterly trade data for Switzerland over 2004-2011, we study exchange rate pass through (ERPT) into imported intermediate input prices and its role in the price setting behaviour of exporters. We explicitly include disaggregated proxies for imported input prices in our analyses to investigate whether Swiss ex-porters may have “naturally hedged” exchange rate risks by sourcing inputs from abroad, especially during periods of strong CHF appreciation. Our results indicate high ERPT into imported input prices in all sectors and strong sectoral ERPT heterogeneity on the export side in both the short and long-run. They also suggest the use of “natural hedging” as an effective strategy to reduce exchange rate risks. Significantly however, Swiss exporters may not have adjusted export pricing practice in response to a strong CHF in the wake of the Euro crisis, which questions central bank intervention during that period.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 39438.

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Date of creation: 04 Jun 2012
Handle: RePEc:pra:mprapa:39438
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Keywords: Exchange rates; exchange-rate-pass-through; international trade; prices;

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Find related papers by JEL classification:
  • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
  • F31 - International Economics - - International Finance - - - Foreign Exchange

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Cited by:

  1. Auer, Raphael A. & Mehrotra, Aaron, 2014. "Trade linkages and the globalisation of inflation in Asia and the Pacific," Journal of International Money and Finance, Elsevier, vol. 49(PA), pages 129-151.
  2. Mary Amiti & Oleg Itskhoki & Jozef Konings, 2014. "Importers, Exporters, and Exchange Rate Disconnect," American Economic Review, American Economic Association, vol. 104(7), pages 1942-1978, July.
  3. Tscheke, Jan, 2016. "Operational Hedging of Exchange Rate Risks," Discussion Papers in Economics 30227, University of Munich, Department of Economics.
  4. Boris Kaiser & Michael Siegenthaler, 2016. "The Skill‐biased Effects of Exchange Rate Fluctuations," Economic Journal, Royal Economic Society, vol. 0(592), pages 756-780, 05.
  5. Raphael Auer & Aaron Mehrotra, 2014. "Real globalisation and price spillovers in Asia and the Pacific," BIS Papers chapters,in: Bank for International Settlements (ed.), Globalisation, inflation and monetary policy in Asia and the Pacific, volume 77, pages 81-89 Bank for International Settlements.
  6. Ahn, JaeBin & Park, Chang-Gui, 2014. "Exchange rate pass-through to domestic producer prices: Evidence from Korean firm-level pricing survey," Economics Letters, Elsevier, vol. 125(1), pages 138-142.
  7. repec:eee:iburev:v:26:y:2017:i:3:p:476-490 is not listed on IDEAS

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