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Monetary determinants of the Swiss franc

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  • Carlos Lenz
  • Marcel Savioz

Abstract

This paper looks into the determinants of the Swiss franc exchange rate against the euro. Based on the monetary approach to exchange rates, we start from the premise that monetary policy has an influence on the exchange rate. To measure this effect, we apply the structural vector-autoregression methodology on a set of Swiss macroeconomic variables and the euro area interest rate. Overall, we find that Swiss monetary policy contributes between 7 and 15% to variations of the exchange rate between 1981 and 2008. Focusing on the episode between 2003 and 2005 we attribute more than half of the depreciation of the franc to Swiss monetary policy.

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File URL: http://www.snb.ch/n/mmr/reference/working_paper_2009_16/source/working_paper_2009_16.n.pdf
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Bibliographic Info

Paper provided by Swiss National Bank in its series Working Papers with number 2009-16.

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Length: 28 pages
Date of creation: 2009
Date of revision:
Handle: RePEc:snb:snbwpa:2009-16

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Keywords: exchange rates; monetary policy; structural VAR models;

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References

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  1. Artis, Michael J & Ehrmann, Michael, 2000. "The Exchange Rate - A Shock-Absorber or Source of Shocks? A Study of Four Open Economies," CEPR Discussion Papers 2550, C.E.P.R. Discussion Papers.
  2. Tanya Molodtsova & Alex Nikolsko-Rzhevskyy & David H. Papell, 2009. "Taylor Rules and the Euro," Emory Economics 0903, Department of Economics, Emory University (Atlanta).
  3. David O. Cushman & Tao Zha, 1995. "Identifying monetary policy in a small open economy under flexible exchange rates," Working Paper 95-7, Federal Reserve Bank of Atlanta.
  4. Cerra, Valerie & Saxena, Sweta Chaman, 2010. "The monetary model strikes back: Evidence from the world," Journal of International Economics, Elsevier, vol. 81(2), pages 184-196, July.
  5. Groen, Jan J. J., 2000. "The monetary exchange rate model as a long-run phenomenon," Journal of International Economics, Elsevier, vol. 52(2), pages 299-319, December.
  6. Angelo Ranaldo & Paul Söderlind, 2010. "Safe Haven Currencies," Review of Finance, European Finance Association, vol. 14(3), pages 385-407.
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Cited by:
  1. Irineu de Carvalho Filho, 2013. "Risk-off Episodes and Swiss Franc Appreciation: the Role of Capital Flows," Working Papers 13.07, Swiss National Bank, Study Center Gerzensee.

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