PB-71 Exchange rate effects on Austrian exports

This policy brief examines the extent to which Austrian exports are exposed to exchange rate risk and how exchange rate fluctuations affect exports to countries outside the euro area. As exchange rates are largely disconnected from macroeconomic fundamentals, they are likely driven to some extent by financial shocks, resulting in significant volatility and exchange rate risk. Nevertheless, Austria’s overall exposure to such risk is relatively limited. Most exports go to countries with comparatively stable currencies, while highly volatile currencies account for only a small share of both total exports and exporting firms. Survey evidence indicates that many Austrian exporters manage exchange rate risk by invoicing in euros, which substantially reduces short-term risk, especially for small and medium-sized firms. In addition, a considerable number of firms use trade insurance. Empirical studies show that Austrian exports react only moderately to exchange rate movements, although the degree of sensitivity varies significantly across sectors and products.