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Net foreign asset positions and appreciation expectations on the Swiss franc and the Japanese Yen

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  • Sophia Latsos

    (Universität Leipzig)

  • Gunther Schnabl

    (Universität Leipzig)

Abstract

The paper shows that currencies of countries with persistent current account surpluses and high foreign-currency denominated assets, such as the Swiss franc and the Japanese yen, are under persistent appreciation pressure, particularly when the centres of the world monetary system follow expansionary monetary policies. This limits the choice of exchange rate regime. Given flexible exchange rates, a negative risk premium on the domestic interest rate can emerge. Empirical estimations provide mixed evidence for a negative impact of net foreign asset positions and exchange rate uncertainty on interest rates of international creditor countries at the periphery of the world monetary system.

Suggested Citation

  • Sophia Latsos & Gunther Schnabl, 2018. "Net foreign asset positions and appreciation expectations on the Swiss franc and the Japanese Yen," International Economics and Economic Policy, Springer, vol. 15(2), pages 261-280, April.
    • Handle: RePEc:kap:iecepo:v:15:y:2018:i:2:d:10.1007_s10368-017-0403-5
    DOI: 10.1007/s10368-017-0403-5
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    Cited by:

    1. Schnabl Gunther, 2018. "Monetary Integration, Fiscal Divergence and Current Account Imbalances in Europe," The Economists' Voice, De Gruyter, vol. 15(1), pages 1-16, December.

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    More about this item

    Keywords

    Swiss franc; Japanese yen; Exchange rate risk; Negative risk premium; Self-fulfilling expectations; Appreciation pressure;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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