The sharp appreciation of the Swiss Franc and its ongoing strength despite the exchange rate
peg that the Swiss National Bank introduced in 2011 (and lifted in 2015) have raised
fears about negative export growth and resulting losses for Swiss exporters. From an economic
perspective, a temporary currency appreciation may even have a permanent adverse
effect on exports. However, a high level of integration into global value chains (GVCs)
could potentially mitigate these negative effects by simultaneously rendering imported intermediate
inputs cheaper. This significant use of intermediate inputs by Swiss manufacturing industries and firms has implications
for their economic resilience to exchange rate movements. The adverse effect on Swiss manufacturing
exporters resulting from an appreciation of the Swiss Franc would be expected to be
mitigated at both margins of trade by decreasing the relative prices of imported intermediate
inputs, thereby reducing the need for export price increases or to incur lower profit margins. This would result in a higher resilience of export demand to exchange rate fluctuations. Using both product-level and firm-level panel data, our results suggest that Swiss exports (intensive margin) and the export probability(extensive margin) are negatively affected by a currency appreciation. However, this
adverse effect is mitigated in sectors and firms that are more integrated in GVCs (natural heding). Moreover, our results also indicate that export hysteresis is a real concern, that is Swiss Franc appreciations can have long-lasting negative effects on the structure of the Swiss export economy.