Colloquium: Firm Effects of Exchange Rate Shocks

Abstract:
We analyze the impact of exchange rate shocks, induced by central bank interventions in the foreign exchange market, on a panel of roughly 100,000 Japanese firms over up to 30 years. A purchase of 11 billion U.S. Dollar induces a Yen-depreciation by 1.1%; this increases firms’ revenues by 0.9%, investment by 0.3%, and profitability by 0.1% points, while leverage decreases. These effects hold for most industries. Effects are heterogeneous regarding firm size and export orientation; larger export-oriented firms take advantage of higher revenues and profitability, while smaller domestically oriented firms create jobs and decrease leverage.