How are Firms Affected by Exchange Rate Shocks? Evidence from Survey Based Impulse Responses

KOF Working Papers No. 371

36 Pages Posted: 21 Feb 2015

See all articles by Dirk Drechsel

Dirk Drechsel

ETH Zurich - KOF Swiss Economic Institute

Heiner Mikosch

KOF Swiss Economic Institute

Samad Sarferaz

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich

Matthias Bannert

ETH Zurich - KOF Swiss Economic Institute

Date Written: January 20, 2015

Abstract

This paper studies the effects of a change in the Swiss franc/euro exchange rate floor, as introduced by the Swiss National Bank in September 2011 using a survey based impulse responses analysis. Survey based impulse responses incorporate experimental settings into representative firm surveys, expose firm executives to treatment or shock scenarios and evaluate the effects of the shocks on executives’ expected firm-level outcomes. Our results suggest that a change in the exchange rate floor from 1.20 to 1.10 Swiss francs per euro and a subsequent appreciation of the Swiss franc by the same magnitude considerably decreases expected turnovers, costs and profits of Swiss firms. Manufacturing turnover decreases by 3.3% within six months and by 4.3% within 18 months. Total costs decline by 1.3% within six months and 2.0% within 18 months, while profits shrink by 3.3% within six months. The effects are substantially lower for the service and the construction sector, but exhibit large variation across sub-sector industries. Panel regression analysis reveals that firm-specific export shares and intermediate goods import shares are key determinants of firms’ turnover, costs and profits reactions.

Keywords: Swiss franc/euro exchange rate floor, survey based impulse responses, macroeconomic shock identification, structural micro data, disaggregation

JEL Classification: C83, C99, E37, F31

Suggested Citation

Drechsel, Dirk and Mikosch, Heiner and Sarferaz, Samad and Bannert, Matthias, How are Firms Affected by Exchange Rate Shocks? Evidence from Survey Based Impulse Responses (January 20, 2015). KOF Working Papers No. 371. Available at SSRN: https://ssrn.com/abstract=2567676 or http://dx.doi.org/10.2139/ssrn.2567676

Dirk Drechsel

ETH Zurich - KOF Swiss Economic Institute ( email )

Zurich
Switzerland

Heiner Mikosch

KOF Swiss Economic Institute ( email )

Weinbergstrasse 35
Zurich, CH-8092
Switzerland

Samad Sarferaz

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich ( email )

Zürichbergstrasse 18
Zurich, 8092
Switzerland

Matthias Bannert (Contact Author)

ETH Zurich - KOF Swiss Economic Institute ( email )

Zurich
Switzerland

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