The Impact of Swiss Franc Appreciation on the Performance of the Export-oriented Swiss Watch Industry: A Case Study of the Currency Peg Release in Mid-January 2015

Tyll Wrase

Student thesis: Master thesis


This thesis investigates the impact of the appreciation of the Swiss Franc on the performance of the Swiss watch industry following the release of the currency’s peg from the Euro. Due to the sudden lifting of the foreign exchange rate cap in mid-January 2015 by the Swiss National Bank, an environment of economic uncertainty developed. In order to realize what power such an event can have, the ex-ante and ex-post performance of the Swiss watch industry is examined. An empirical investigation is carried out adopting a difference-in-differences framework with other complementary statistical models. Previous theories discuss the effect of foreign exchange rate movements triggered by direct monetary interventions on economic performance. Based on past evidence from scholars, a considerable currency appreciation can cause a shift away from a tradable goods industry. Taking the example of the tradable Swiss watch industry, a new approach of a relatively price-insensitive luxury sector is chosen. To test the impact following the release of the currency cap on the performance of the Swiss timepiece industry, a total sample of up to 502 market-to-book time differentials per sector is chosen from mid-January 2014 to 2016 in the difference-in-differences analyses. The lasting effectiveness of such monetary policy change on industry performance is examined with the use of annual, quarterly and monthly intervals in the given framework. The empirical analysis carried out discloses that the performance of the Swiss watch industry is not significantly impacted by the exogenous shock in the form of the monetary policy alteration in midJanuary 2015. Neither of the investigated time-frames show viable results. Only noticeable is a tendency of short-term effects on watch industry performance. However, additional empirical research has to be conducted to attain statistical evidence. Hence, the move from a fixed-peg currency regime to a floating currency regime has no influence on an export-oriented luxury industry. From this it can be confirmed that high-priced luxury goods are immune to price sensitivity and more dependent on the economic situations in customer countries. It is solely the low-priced electronic watch segment that fears a market share loss through any appreciation of the Swiss Franc but this does not diminish industry’s overall performance because its core competency is in manufacturing mainly high-valued mechanical watches.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
Publication date2016
Number of pages102
SupervisorsSteffen Brenner