I am looking for an argument that translation risk (when foreign
subsidiaries of an international firm have their balance sheet
consolidated in the headquarters currency) is a real economic risk and
needs to be hedged.

Many companies argue that they only need to hedge transaction risk
(when you make a deal in a foreign currency), but not translation
risk.

Ideally, I would like to find a paper that argues that translation
risk needs to be hedged as well since it poses an economic risk.

I am not looking for general descriptions of what translation or
transaction risk is, when it occurs or how it is calculated.

Maybe take a look at http://www.cbe.wwu.edu/cib/papers/singleton.pdf

I just did a search for '"transaction risk" "translation risk"' and
'"transaction risk" "translation risk" paper'.

I didn't take a closer look on the file (and am no financial
economist), but it might help you out.

Best, 
-David 
 
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David, thanks for your input.

Unfortunately, the paper doesn't deal with translation exposure:
"translation and economic exposure to exchange rate gains or losses
are beyond the scope of the discussion."