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Exchange Rate Returns and External Adjustment: Evidence from Switzerland

Author

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  • Christian Grisse

    (Swiss National Bank)

  • Thomas Nitschka

    (Swiss National Bank)

Abstract

This paper studies the predictive power of external imbalances for exchange rate returns. We focus on Switzerland, a very open economy where exchange rate movements have a strong effect on external imbalances through valuation effects and trade flows. Using a simple modification of the Gourinchas and Rey (J Polit Econ 115(4):665–703, 2007) approach to make their approximation applicable to Switzerland, we find that measures of deviations from trends in Swiss net foreign assets and net exports help to forecast Swiss franc nominal effective exchange rate movements, both in and out of sample.

Suggested Citation

  • Christian Grisse & Thomas Nitschka, 2016. "Exchange Rate Returns and External Adjustment: Evidence from Switzerland," Open Economies Review, Springer, vol. 27(2), pages 317-339, April.
    • Handle: RePEc:kap:openec:v:27:y:2016:i:2:d:10.1007_s11079-015-9376-6
    DOI: 10.1007/s11079-015-9376-6
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    Cited by:

    1. Makoto Shimizu, 2020. "The Present-Value Model of the Exchange Rate with a Persistently Time-Varying Risk Premium: Evidence from the Dollar-Yen Rate," Open Economies Review, Springer, vol. 31(5), pages 1037-1059, November.
    2. Agust n S. B n trix & Philip R. Lane, "undated". "Cross-Country Exposures to the Swiss Franc," Trinity Economics Papers tep0116, Trinity College Dublin, Department of Economics.
    3. Agustín S. Bénétrix & Philip R. Lane, "undated". "Cross-Country Exposures to the Swiss Franc," Trinity Economics Papers tep0116, Trinity College Dublin, Department of Economics.

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    More about this item

    Keywords

    External imbalances; External adjustment; Exchange rates; Swiss franc;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications

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