How are firms affected by exchange rate shocks?

Dirk Drechsel, Heiner Mikosch, Samad Sarferaz and Matthias Bannert ()
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Matthias Bannert: KOF Swiss Economic Institute, ETH Zurich, Switzerland

No 15-371, KOF Working papers from KOF Swiss Economic Institute, ETH Zurich

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 out- comes. 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 inter- mediate 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; KOF-Key-frankenschock (search for similar items in EconPapers)
Pages: 36 pages
Date: 2015-01
New Economics Papers: this item is included in nep-mac and nep-mon
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Citations: View citations in EconPapers (7)

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