The Demise of the Swiss Interest Rate Puzzle
AbstractIn this paper we analyzed the violations of UIP for the Swiss Franc against the Dollar, the Euro, the Yen, the Pound and the Canadian Dollar using recent data up to fall 2008. This exercise provides the following main results : first the Swiss interest rate puzzle disappeared, i.e. mean returns on Swiss Franc assets are no longer systematically and significantly lower (as in the 1980 – 1998 sample) when compared jointly with other major currencies in the 1999 to 2008 period. Second and in contrast to earlier evidence we failed to find evidence that geopolitical crises lead to an appreciation of the Swiss Franc in the last ten years. Third even the short run validity of UIP cannot be rejected for the Swiss Franc against the five currencies for the 1999 – 2008 sample. Unfortunately our attempt to locate the time of change and the currencies involved by the application of tests for structural breaks with unknown break point did not lead to clear cut conclusion for the Euro and the Dollar, the two most important foreign currencies from a Swiss perspective.
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Bibliographic InfoPaper provided by Faculty of Business and Economics - University of Basel in its series Working papers with number 2009/04.
Date of creation: 2009
Date of revision:
Find related papers by JEL classification:
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
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- Robert J. Barro, 2005. "Rare Events and the Equity Premium," NBER Working Papers 11310, National Bureau of Economic Research, Inc.
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