Working Paper: CEPR ID: DP15397
Authors: Raphael Auer; Sarah Lein; Ariel Tomas Burstein
Abstract: We dissect the impact of a large and sudden exchange rate appreciation on Swiss border import prices, retail prices, and consumer expenditures on domestic and imported non-durable goods, following the removal of the EUR/CHF floor in January 2015. Cross-sectional variation in border price changes by currency of invoicing carries over to consumer prices and allocations, impacting retail prices of imports and competing domestic goods, as well as import expenditures. We provide measures of the sensitivity of retail import prices to border prices and the sensitivity of import shares to relative prices, which is higher when using retail prices than border prices.
Keywords: large exchange rate shock; exchange rate passthrough; invoicing currency; expenditure switching; optimal pricesetting; nominal rigidities
JEL Codes: F12; F31; F41; L11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| 2015 CHF appreciation (F31) | decline in border prices (F16) |
| decline in border prices (F16) | decrease in retail import prices (F14) |
| decrease in retail import prices (F14) | decline in retail prices of domestic goods (P22) |
| 2015 CHF appreciation (F31) | increase in consumer expenditure shares on imported goods (F62) |
| increase in consumer expenditure shares on imported goods (F62) | stronger increase in categories invoiced in euros (F36) |