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Verbal interventions and exchange rate policies: The case of Swiss franc cap

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  • Mirkov, Nikola
  • Pozdeev, Igor
  • Söderlind, Paul

Abstract

We ask whether verbal interventions by the Swiss National Bank (SNB) affected market beliefs in the desired direction during the period from 2011 to 2015, when the SNB imposed a cap on the Swiss franc at 1.20 against the euro. A verbal intervention was a speech by a member of the SNB Governing Board containing the wording “utmost determination” and/or “unlimited quantities”. We show that these verbal interventions lowered uncertainty regarding the future value of euro/Swiss franc exchange rate and steered market beliefs toward franc depreciation, therefore reinforcing the credibility of the Swiss franc cap.

Suggested Citation

  • Mirkov, Nikola & Pozdeev, Igor & Söderlind, Paul, 2019. "Verbal interventions and exchange rate policies: The case of Swiss franc cap," Journal of International Money and Finance, Elsevier, vol. 93(C), pages 42-54.
    • Handle: RePEc:eee:jimfin:v:93:y:2019:i:c:p:42-54
    DOI: 10.1016/j.jimonfin.2018.12.010
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    Cited by:

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    2. Alex Oktay, 2022. "Heterogeneity in the exchange rate pass-through to consumer prices: the Swiss franc appreciation of 2015," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 158(1), pages 1-20, December.
    3. Markus Hertrich, 2022. "Foreign exchange interventions under a minimum exchange rate regime and the Swiss franc," Review of International Economics, Wiley Blackwell, vol. 30(2), pages 450-489, May.
    4. Manuel Ammann & Alexander Feser, 2019. "Robust estimation of risk‐neutral moments," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 39(9), pages 1137-1166, September.
    5. Yin Germaschewski & Jaroslav Horvath & Jiansheng Zhong, 2022. "Oral interventions in the foreign exchange market: evidence from Australia," Empirical Economics, Springer, vol. 62(6), pages 2713-2737, June.
    6. Guo, Junjie & Guo, Yumei & Miao, Shan & Pang, Xin, 2021. "An investigation of semantic similarity in PBOC’s communication on RMB volatility," International Review of Economics & Finance, Elsevier, vol. 75(C), pages 441-455.
    7. Wenbo Wang & Dieu Thanh Le & Hail Park, 2020. "Is Foreign Exchange Intervention a Panacea in Diversified Circumstances? The Perspectives of Asymmetric Effects," Sustainability, MDPI, vol. 12(7), pages 1-20, April.
    8. Tanin, Tauhidul Islam & Sarker, Ashutosh & Brooks, Robert, 2021. "Do currency exchange rates impact gold prices? New evidence from the ongoing COVID-19 period," International Review of Financial Analysis, Elsevier, vol. 77(C).
    9. Jinzhao Chen, 2023. "The "real" exchange rate regime in China since 2015's exchange rate reform," Post-Print hal-04402467, HAL.
    10. Parra-Polanía, Julián & Sánchez-Jabba, Andrés & Sarmiento, Miguel, 2024. "Are FX communications effective? Evidence from emerging markets," Emerging Markets Review, Elsevier, vol. 59(C).

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    More about this item

    Keywords

    Swiss franc; options; FX liquidity; Verbal interventions;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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