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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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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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Related research

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

Find related papers by JEL classification:

• E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
• F31 - International Economics - - International Finance - - - Foreign Exchange
• C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models

References

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1. Tanya, Molodtsova & Nikolsko-Rzhevskyy, Alex & Papell, David, 2008. "Taylor Rules and the Euro," MPRA Paper 11348, University Library of Munich, Germany.
   
   • Tanya Molodtsova & Alex Nikolsko‐Rzhevskyy & David H. Papell, 2011. "Taylor Rules and the Euro," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43, pages 535-552, 03.
   • Tanya Molodtsova & Alex Nikolsko-Rzhevskyy & David H. Papell, 2009. "Taylor Rules and the Euro," Emory Economics 0903, Department of Economics, Emory University (Atlanta).
2. Artis, Michael & Ehrmann, Michael, 2006. "The exchange rate - A shock-absorber or source of shocks? A study of four open economies," Journal of International Money and Finance, Elsevier, vol. 25(6), pages 874-893, October.
   
   • Michael Artis & Michael Ehrmann, 2000. "The Exchange Rate -a Shock-Absorber or Source of Shocks? A Study of Four Open Economies," EUI-RSCAS Working Papers 38, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).
   • 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.
3. Angelo Ranaldo & Paul Söderlind, 2007. "Safe Haven Currencies," Working Papers 2007-17, Swiss National Bank.
   
   • Angelo Ranaldo & Paul Söderlind, 2010. "Safe Haven Currencies," Review of Finance, European Finance Association, vol. 14(3), pages 385-407.
   • Ranaldo, Angelo & Söderlind, Paul, 2009. "Safe Haven Currencies," CEPR Discussion Papers 7249, C.E.P.R. Discussion Papers.
   • Angelo Ranaldo & Paul Söderlind, 2007. "Safe Haven Currencies," University of St. Gallen Department of Economics working paper series 2007 2007-22, Department of Economics, University of St. Gallen.
4. Valerie Cerra & Sweta Chaman Saxena, 2008. "The Monetary Model Strikes Back: Evidence from the World," IMF Working Papers 08/73, International Monetary Fund.
   
   • 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. 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.
   
   • Cushman, David O. & Zha, Tao, 1997. "Identifying monetary policy in a small open economy under flexible exchange rates," Journal of Monetary Economics, Elsevier, vol. 39(3), pages 433-448, August.
6. Jan J.J. Groen, 1998. "The Monetary Exchange Rate Model as a Long-Run Phenomenon," Tinbergen Institute Discussion Papers 98-082/2, Tinbergen Institute.
   
   • 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.

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