IDEAS home Printed from https://ideas.repec.org/a/ibn/ibrjnl/v9y2016i8p84-90.html
   My bibliography  Save this article

Appreciation Pressures and Real Depreciation: The Experience with the Swiss Franc-Euro Exchange Rate Floor

Author

Listed:
  • Tobias F. Rotheli

Abstract

We study the course of the Swiss price level during the recent episode where Switzerland enforced a floor on the Swiss Franc exchange rate relative to the Euro. Given the strong nominal upward pressure on the Swiss currency the introduced limit of 1.20 Francs per Euro led to a quasi-fixed exchange rate from 2011 until early 2015. This measure was specifically aimed at helping the firms of the Swiss export sector to compete internationally. A further reason for imposing this floor was the Swiss National Bank¡¯s concern with deflationary pressures. Interestingly, it turned out that during the episode with a quasi-fixed exchange rate the Swiss price level came under downward pressure. We offer an analysis that helps to understand this depreciation of the Swiss currency in real terms which in fact contributed to the exchange rate floor being eventually abandoned. The article thus clarifies some intricate mechanisms affecting the choice of exchange rate policies which are so important for firms in the export sector. As a theoretical contribution (complementing the well-known Balassa-Samuelson analysis) the article presents a computable equilibrium model that explains real exchange rate variations with diverging trends in the productivity growth of the non-traded goods sectors of economies.

Suggested Citation

  • Tobias F. Rotheli, 2016. "Appreciation Pressures and Real Depreciation: The Experience with the Swiss Franc-Euro Exchange Rate Floor," International Business Research, Canadian Center of Science and Education, vol. 9(8), pages 84-90, August.
    • Handle: RePEc:ibn:ibrjnl:v:9:y:2016:i:8:p:84-90
    as

    Download full text from publisher

    File URL: http://www.ccsenet.org/journal/index.php/ibr/article/view/60875/32602
    Download Restriction: no
    File URL: http://www.ccsenet.org/journal/index.php/ibr/article/view/60875
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Sweeney, Richard J., 2006. "Mean Reversion in G-10 Nominal Exchange Rates," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 41(3), pages 685-708, September.
    2. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, vol. 72, pages 584-584.
    3. Silvia Simon & Karl Hausner, 2012. "The impact of the euro crisis on Switzerland," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 47(2), pages 112-119, March.
    4. Peter Bernholz, 2015. "The Swiss Experiment: From the Lower Bound to Flexible Exchange Rates," Cato Journal, Cato Journal, Cato Institute, vol. 35(2), pages 403-410, Spring/Su.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Esa Mangeloja, 2004. "Interrelationship of economic growth and regional religious properties," ERSA conference papers ersa04p94, European Regional Science Association.
    2. Takatoshi Ito & Peter Isard & Steven Symansky, 1999. "Economic Growth and Real Exchange Rate: An Overview of the Balassa-Samuelson Hypothesis in Asia," NBER Chapters, in: Changes in Exchange Rates in Rapidly Developing Countries: Theory, Practice, and Policy Issues, pages 109-132, National Bureau of Economic Research, Inc.
    3. Couharde, Cécile & Delatte, Anne-Laure & Grekou, Carl & Mignon, Valérie & Morvillier, Florian, 2020. "Measuring the Balassa-Samuelson effect: A guidance note on the RPROD database," International Economics, Elsevier, vol. 161(C), pages 237-247.
    4. Antonia López Villavicencio & Josep Lluís Raymond Bara, 2006. "The short and long-run determinants of the real exchange rate in Mexico," Working Papers wpdea0606, Department of Applied Economics at Universitat Autonoma of Barcelona.
    5. Menzie Chinn & Louis Johnston, 1996. "Real Exchange Rate Levels, Productivity and Demand Shocks: Evidence from a Panel of 14 Countries," NBER Working Papers 5709, National Bureau of Economic Research, Inc.
    6. Vlatka Bilas & Mile Bosnjak, 2015. "Revealed Comparative Advantage And Merchandise Exports: The Case Of Merchandise Trade Between Croatia And The Rest Of The European Union Member Countries," Economic Thought and Practice, Department of Economics and Business, University of Dubrovnik, vol. 24(1), pages 29-47, june.
    7. Ken Miyajima, 2013. "Foreign exchange intervention and expectation in emerging economies," BIS Working Papers 414, Bank for International Settlements.
    8. Balázs Égert, 2007. "Real Convergence, Price Level Convergence and Inflation in Europe," Working Papers 267, Bruegel.
    9. Britta Gehrke & Fang Yao, 2016. "Persistence and volatility of real exchange rates: the role of supply shocks revisited," Reserve Bank of New Zealand Discussion Paper Series DP2016/02, Reserve Bank of New Zealand.
    10. Erica Perego & Lionel Fontagné & Gianluca Santoni, 2022. "MaGE 3.1: Long-term macroeconomic projections of the World economy," International Economics, CEPII research center, issue 172, pages 168-189.
    11. Richard C. Marston, 1990. "Systematic Movements in Real Exchange Rates in the G-5: Evidence on theIntegration of Internal and External Markets," NBER Working Papers 3332, National Bureau of Economic Research, Inc.
    12. Heng, Dyna, 2011. "Capital flows and real exchange rate: does financial development matter?," MPRA Paper 48553, University Library of Munich, Germany, revised May 2012.
    13. Sergio Da Silva & Guilherme Moura & Sidney Caetano, 2004. "Big Mac parity, income, and trade," Economics Bulletin, AccessEcon, vol. 6(12), pages 1-8.
    14. Erdem Basci & Özgür Özel & Cagri Sarikaya, 2008. "The monetary transmission mechanism in Turkey: new developments," BIS Papers chapters, in: Bank for International Settlements (ed.), Transmission mechanisms for monetary policy in emerging market economies, volume 35, pages 475-499, Bank for International Settlements.
    15. Stacie Beck & Cagay Coskuner, 2007. "Tax Effects on the Real Exchange Rate," Review of International Economics, Wiley Blackwell, vol. 15(5), pages 854-868, November.
    16. repec:zbw:rwirep:0005 is not listed on IDEAS
    17. Simões, Oscar R. & Marçal, Emerson Fernandes, 2012. "Agregação temporal e não-linearidade afetam os testes da paridade do poder de compra: Evidência a partir de dados brasileiros," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 66(3), October.
    18. Bofinger, Peter & Wollmershauser, Timo, 2001. "Is there a third way to EMU for the EU accession countries?," Economic Systems, Elsevier, vol. 25(3), pages 253-274, September.
    19. Assaf Razin & Efraim Sadka, 1996. "Fiscal Balance During Inflation, Disinflation, and Immigration: Policy Lessons," IMF Working Papers 1996/033, International Monetary Fund.
    20. Muntasir Murshed & Seemran Rashid, 2020. "An Empirical Investigation of Real Exchange Rate Responses to Foreign Currency Inflows: Revisiting the Dutch Disease Phenomenon in South Asia," The Economics and Finance Letters, Conscientia Beam, vol. 7(1), pages 23-46.
    21. Barbara Rossi, 2013. "Exchange Rate Predictability," Journal of Economic Literature, American Economic Association, vol. 51(4), pages 1063-1119, December.

    More about this item

    Keywords

    exchange rate floor; nominal appreciation and real depreciation; deflation;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ibn:ibrjnl:v:9:y:2016:i:8:p:84-90. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Canadian Center of Science and Education (email available below). General contact details of provider: https://edirc.repec.org/data/cepflch.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.