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

83 Pages Posted: 7 Jan 2019

See all articles by Raphael Auer

Raphael Auer

Bank for International Settlements (BIS)

Ariel T. Burstein

University of California, Los Angeles (UCLA) - Department of Economics

Sarah M. Lein

Swiss National Bank; University of Basel; ETH Zürich - KOF Swiss Economic Institute

Multiple version iconThere are 3 versions of this paper

Date Written: September 1, 2018

Abstract

The removal of the lower bound on the EUR/CHF exchange rate in January 2015 provides a unique setting to study the implications of a large and sudden appreciation in an otherwise stable macroeconomic environment. Using transaction-level data on non-durable goods purchases by Swiss consumers, we measure the response of border and consumer retail prices to the CHF appreciation and how household expenditures responded to these price changes. Consumer prices of imported goods and of competing Swiss-produced goods fell by more in product categories with larger reductions in border prices and a lower share of CHF-invoiced border prices. These price changes resulted in substantial expenditure switching between imported and Swiss-produced goods. While the frequency of import retail price reductions rose in the aftermath of the appreciation, the average size of these price reductions fell (and more so in product categories with larger border price declines and a lower share of CHF-invoiced border prices), contributing to low pass-through into import prices.

Keywords: large exchange rate shocks, exchange rate pass-through, invoicing currency, expenditure switching, price-setting, nominal and real rigidities, monetary policy

JEL Classification: D4, E31, E50, F31, F41, L11

Suggested Citation

Auer, Raphael and Burstein, Ariel T. and Lein, Sarah M. and Lein, Sarah M., Exchange Rates and Prices: Evidence from the 2015 Swiss Franc Appreciation (September 1, 2018). BIS Working Paper No. 751, Available at SSRN: https://ssrn.com/abstract=3301610

Raphael Auer (Contact Author)

Bank for International Settlements (BIS) ( email )

Ariel T. Burstein

University of California, Los Angeles (UCLA) - Department of Economics ( email )

Box 951477
Bunche Hall 8365
Los Angeles, CA 90095-1477
United States
310-206-6732 (Phone)
310-825-9528 (Fax)

Sarah M. Lein

Swiss National Bank ( email )

Research
Fraumuensterstr. 8
Zuerich, 8022
Switzerland

University of Basel ( email )

Petersplatz 1
Basel, CH-4003
Switzerland

ETH Zürich - KOF Swiss Economic Institute ( email )

Zurich
Switzerland

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