Natural hedging of exchange rate risk: The role of imported input prices
Fauceglia, Dario; ; (2014). Natural hedging of exchange rate risk: The role of imported input prices. Swiss Journal of Economics and Statistics, 150, 4. 261-296. Peer reviewed.
Using disaggregated quarterly data for Switzerland over 2004-2011, we study exchange-rate pass-through into imported input prices and its role in the price setting behavior of exporters. We explicitly include disaggregated proxies for imported input prices in our analyses to investigate whether Swiss exporters may have "naturally hedged" exchange rate risks by sourcing inputs from abroad, especially during periods of strong CHF appreciation. Indeed, our results suggest the use of "natural hedging" as an effective strategy to reduce exchange rate risks.