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Natural Hedging of Exchange Rate Risk: The Role of Imported Input Prices

Swiss Journal of Economics and Statistics volume 150, pages 261–296 (2014)Cite this article

Summary

In this paper, we estimate ERPT into imported input prices and export prices using disaggregated quarterly trade data for Switzerland over 2004–2011. We find evidence for high pass-through rates into imported input prices. This demonstrates the effectiveness of natural hedging. On the export side, ERPT exhibits substantial sectoral heterogeneity and changes in imported input costs are not transmitted to foreign consumers in most cases. This suggests the use of cheaper imported inputs to offset adverse effects of currency appreciation on export profit margins.

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Authors and Affiliations

  1. University of St. Gallen and Zurich University of Applied Sciences, Switzerland

    Dario Fauceglia

  2. World Trade Institute, University of Bern, Switzerland

    Anirudh Shingal

  3. University of St. Gallen, Switzerland

    Martin Wermelinger

Authors
  1. Dario Fauceglia
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  2. Anirudh Shingal
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  3. Martin Wermelinger
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Correspondence to Dario Fauceglia.

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Fauceglia, D., Shingal, A. & Wermelinger, M. Natural Hedging of Exchange Rate Risk: The Role of Imported Input Prices. Swiss J Economics Statistics 150, 261–296 (2014). https://doi.org/10.1007/BF03399408

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  • DOI: https://doi.org/10.1007/BF03399408

JEL-Classification

  • F31
  • F41

Keywords

  • exchange rates
  • exchange rate pass-through
  • international trade
  • prices