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

The removal of the lower bound on the CHF/EUR nominal exchange rate in January 2015 provides a unique setting to study the implications of a large and sudden appreciation of the nominal exchange rate in an otherwise stable macroeconomic environment. Using retail prices from a homescan data of individual consumer goods and the microdata underlying the import price index, we measure the response of border and consumer prices to the CHF appreciation, and how household expenditures responded to these price changes. Cross-section variation in border price changes induced by differences in the currency of invoicing at the border have a significant impact on consumer prices and expenditures of imported goods at the consumer level, and also on consumer prices of domestically produced goods that compete with these imported good. While the frequency of import price reductions rises in the aftermath of the appreciation, the average size of these price reductions falls (which is consistent with a s-S pricing model with fat-tailed distributed shocks), contributing to low aggregate import-price pass-through.