Exchange rate fluctuations and quality composition of exports: Evidence from Swiss product‐level data

Abstract

This paper studies the relationship between exchange rate movements and the average export quality using disaggregated Swiss product‐level data between 1996 and 2015. We find evidence at different levels of aggregation that the average export quality increases in response to a currency appreciation through compositional effects: currency appreciations shift market shares towards goods that are more expensive and of higher quality. This exchange rate effect on quality is more pronounced for differentiated goods and in sectors with a greater scope for quality differentiation. From a policy perspective, this reallocation effect points to the importance of facilitating structural changes in the export composition to increase the resilience of the export sector to exchange rate shocks. Our results also suggest a positive relationship between the average export quality and aggregate export sales. From a methodological point of view, the findings imply that exchange rate pass‐through estimations without quality controls tend to be biased regardless of aggregation level or type of data.

Endogenous Product Adjustment and Exchange Rate Pass-Through

“…Consistent with our findings, Fauceglia, Plaschnick, and Maurer (2017) and Fauceglia (2020) show for the same period we study that Swiss exporters tended to export higher quality on average after the appreciation. Our contribution is to quantify the effect of quality adjustments on exchange rate pass-through, focusing on a period with a clearly identified exchange rate shock.…”

Quality response to real exchange rate shocks: A panel SVAR analysis on China's agricultural exports

“…First, the intensified competition could provide stronger incentives to upgrade export quality (Dai et al., 2018; Flach, 2016). Second, due to the elasticity of demand and quality‐adjusted price, the structure of the export basket might improve as low‐quality products exit the market and the share of high‐quality goods increases (Auer & Chaney, 2009; Chen & Juvenal, 2016; Fauceglia, 2019). Third, firms would use higher‐quality intermediate inputs as import costs decrease (Feng et al., 2016; Hu et al., 2019).…”

The Dynamics of Exchange Rate Movements and Economic Growth in Nigeria: Does the Mundell–Fleming Model Stand?

“…What are the effects of exchange rate fluctuation on Nigeria's economic performance? Answering these questions will provide essential insights to the various economic agents such as policymakers, public and private investors, and the nexus between exchange rate and economic performance in Nigeria.The adverse and positive effects of exchange rate volatility have been examined in the developed and developing economies like Nigeria owing to its impact on employment generation(Bakhshi and Ebrahimi, 2016;Fang, 2020;Usman and Elsalih, 2018), inflation(Alagidede & Ibrahim, 2017;Bagheri & Gheisarinejad, 2016), trade(Asteriou et al, 2016;Jadoon and Guang, 2019;Rashid and Waqar, 2017;Senadza & Diaba, 2017), exports(Abdoh et al, 2016;Caselli et al, 2017;Fauceglia, 2020;Vieira & MacDonald, 2016;Vo & Zhang, 2019), investment(Avdjiev et al, 2019;Mostafapour et al, 2020;Zakari, 2017), and economic growth and development(Adewuyi & Akpokodje, 2013;Akinlo & Onatunji, 2020;Iheanachor & Ozegbe, 2021). While the exchange rate volatility has been connected to macroeconomic instability, few attempts have been made to unravel the channels through which exchange rate volatility creates such macroeconomic distortions.…”