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Possible effects of European Monetary Union on Switzerland

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  • Laxton, Douglas
  • Prasad, Eswar

Abstract

This paper examines the possible effects on Switzerland of asset preference shifts in favor of Swiss-franc-denominated assets that could result from EMU. Alternative policy responses to temporary and persistent asset preference shifts and the consequent pressures for exchange rate appreciation are examined. Simulations of a stylized macroeconomic model of the Swiss economy indicate that monetary policy is likely to be the most effective tool for stabilizing output in the short run, but at the cost of a temporary increase in inflationary pressures. The simulations highlight the dilemmas faced by policymakers in an environment with low inflation and nominal interest rates.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Policy Modeling.

Volume (Year): 23 (2001)
Issue (Month): 5 (July)
Pages: 531-551

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Handle: RePEc:eee:jpolmo:v:23:y:2001:i:5:p:531-551

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Web page: http://www.elsevier.com/locate/inca/505735

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References

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  1. Douglas Laxton & Guy Debelle, 1996. "Is the Phillips Curve Really a Curve? Some Evidence for Canada, the United Kingdom, and the United States," IMF Working Papers 96/111, International Monetary Fund.
  2. Paolo Mauro, 1995. "Current Account Surpluses and the Interest Rate Island in Switzerland," IMF Working Papers 95/24, International Monetary Fund.
  3. van Wijnbergen, Sweder J G, 1984. "The 'Dutch Disease': A Disease after All?," Economic Journal, Royal Economic Society, vol. 94(373), pages 41-55, March.
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Citations

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Cited by:
  1. Lawrence J. Christiano & Christopher J. Gust, 1999. "Taylor Rules in a Limited Participation Model," NBER Working Papers 7017, National Bureau of Economic Research, Inc.
  2. Volker Wieland & Gunter Coenen, 2003. "The Zero-Interest-Rate Bound and the Role of the Exchange Rate for Monetary Policy in Japan," Computing in Economics and Finance 2003 138, Society for Computational Economics.
  3. Günter Coenen & Volker W. Wieland, 2004. "Exchange-Rate Policy and the Zero Bound on Nominal Interest Rates," American Economic Review, American Economic Association, vol. 94(2), pages 80-84, May.
  4. Patricia S. Pollard, 2001. "The creation of the Euro and the role of the dollar in international markets," Review, Federal Reserve Bank of St. Louis, issue May, pages 17-36.
  5. Coenen, Günter & Orphanides, Athanasios & Wieland, Volker, 2003. "Price stability and monetary policy effectiveness when nominal interest rates are bounded at zero," Working Paper Series 0231, European Central Bank.
  6. Benjamin Hunt & Douglas Laxton, 2004. "The Zero Interest Rate Floor (ZIF) and its Implications for Monetary Policy in Japan," National Institute Economic Review, National Institute of Economic and Social Research, vol. 187(1), pages 76-92, January.
  7. P. A. Tinsley, 1998. "Short rate expectations, term premiums, and central bank use of derivatives to reduce policy uncertainty," Finance and Economics Discussion Series 1999-14, Board of Governors of the Federal Reserve System (U.S.).

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