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The Impact of SNB Monetary Policy on the Swiss Franc and Longer-Term Interest Rates

Author

Listed:
  • Fabian Fink

    (Swiss National Bank)

  • Lukas Frei

    (Swiss National Bank)

  • Thomas Maag

    (Swiss National Bank)

  • Tanja Zehnder

    (Swiss National Bank)

Abstract

We estimate the impact of monetary policy announcements by the Swiss National Bank on the Swiss franc and on the expected path of future short-term interest rates. Monetary policy announcement effects are identified using the identification-through-heteroskedasticity approach. The approach accounts for the simultaneous relation of exchange rates and interest rates. We find that from 2000–11, an announcement of a monetary policy tightening appreciated the nominal Swiss franc on the same day. Importantly, the results indicate that simple methods that do not adequately account for simultaneity between exchange rates and interest rates yield biased and typically non-significant estimates. Our findings further suggest that monetary policy announcements affect medium- to longer-term expectations, which in turn influence the Swiss franc.

Suggested Citation

  • Fabian Fink & Lukas Frei & Thomas Maag & Tanja Zehnder, 2024. "The Impact of SNB Monetary Policy on the Swiss Franc and Longer-Term Interest Rates," International Journal of Central Banking, International Journal of Central Banking, vol. 20(1), pages 53-92, February.
    • Handle: RePEc:ijc:ijcjou:y:2024:q:1:a:2
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    References listed on IDEAS

    as
    1. Christian Grisse & Silvio Schumacher, 2018. "Term structure dynamics at low and negative interest rates—evidence from Switzerland," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 154(1), pages 1-17, December.
    2. Ferrari, Massimo & Kearns, Jonathan & Schrimpf, Andreas, 2021. "Monetary policy’s rising FX impact in the era of ultra-low rates," Journal of Banking & Finance, Elsevier, vol. 129(C).
    3. Ranaldo, Angelo & Rossi, Enzo, 2010. "The reaction of asset markets to Swiss National Bank communication," Journal of International Money and Finance, Elsevier, vol. 29(3), pages 486-503, April.
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    More about this item

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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