30 Jun 2014
MILE 02, Anirudh Shingal
Natural Hedging of Exchange Rate Risk: The Role of Imported Input Prices
A journal article by Dario Fauceglia, Anirudh Shingal and Martin Wermelinger published by Swiss Journal of Economics and Statistics (SJES), 2014, vol. 150, issue IV, pages 261-296
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.