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Current Account Surpluses and the Interest Rate Island in Switzerland

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  • Paolo Mauro

Abstract

This paper describes some long-run aspects of the Swiss balance of payments, highlighting two macroeconomic phenomena that make Switzerland stand out among other countries: first, it has had a persistent current account surplus and the largest ratio of net foreign assets to GDP in the world; second, its real interest rates have been significantly lower than those of most other industrialized countries, earning it the label “interest rate island”. These two distinctive features may be related, and ultimately both may result from an excess of national savings over investment for many years. The real interest differential may largely be attributed to a foreign exchange rate risk premium, which compensates Swiss residents for holding net assets in foreign currency and foreign residents for bearing net liabilities in Swiss francs.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 95/24.

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Length: 46
Date of creation: 01 Feb 1995
Date of revision:
Handle: RePEc:imf:imfwpa:95/24

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Cited by:
  1. J.M. Berk & K.H.W. Knot, 1999. "Co-Movements in Long-Term Interest Rates and the Role of PPP-BasedExchange Rate Expectations," DNB Staff Reports (discontinued) 37, Netherlands Central Bank.
  2. Douglas Laxton & Eswar Prasad, 1997. "Possible Effects of European Monetary Unionon Switzerland," IMF Working Papers 97/23, International Monetary Fund.
  3. C.A. Ullersma, 2001. "The Zero Lower Bound on Nominal Interest Rates and Monetary Policy Effectiveness: a Survey," MEB Series (discontinued) 2001-9, Netherlands Central Bank, Monetary and Economic Policy Department.
  4. Berk, Jan Marc & Knot, Klaas H. W., 2001. "Testing for long horizon UIP using PPP-based exchange rate expectations," Journal of Banking & Finance, Elsevier, vol. 25(2), pages 377-391, February.

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