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Communicating Policy Options at the Zero Bound

  • Lukas Burkhard
  • Andreas M. Fischer

This paper examines a special episode in communication practices of the Swiss National Bank (SNB) when short-term interest rates reached the zero bound. A particular feature of SNB communication policy at the time was to talk openly about alternative policy instruments despite the fact that they were never implemented. Non-sterilized FX interventions were frequently mentioned as a potential instrument. We ask how did financial markets respond to the SNBs repeated references of non-sterilized interventions? The empirical results with high frequency data provide strong evidence that SNB intervention references depreciated the domestic currency for several hours. The case study supports the view that communication is an effective tool for monetary policy.

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Paper provided by Swiss National Bank in its series Working Papers with number 2007-12.

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Length: 43 pages
Date of creation: 2007
Date of revision:
Handle: RePEc:snb:snbwpa:2007-12
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  1. Rich, Georg, 1990. "Exchange-rate management under floating exchange rates : A skeptical Swiss view," Journal of Banking & Finance, Elsevier, vol. 14(5), pages 993-1021, November.
  2. Georg Rich, 2000. "Switzerland and the euro," Atlantic Economic Journal, International Atlantic Economic Society, vol. 28(3), pages 309-311, September.
  3. Andreas M. Fischer, 2002. "Fluctuations in the Swiss Franc: What has Changed Since the Euro's Introduction?," Working Papers 02.03, Swiss National Bank, Study Center Gerzensee.
  4. Jansen, David-Jan & De Haan, Jakob, 2005. "Talking heads: the effects of ECB statements on the euro-dollar exchange rate," Journal of International Money and Finance, Elsevier, vol. 24(2), pages 343-361, March.
  5. Richard Payne, 2001. "A Transaction Level Study of the Effects of Central Bank Intervention on Exchange Rates," FMG Discussion Papers dp355, Financial Markets Group.
  6. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Clara Vega, 2002. "Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange," NBER Working Papers 8959, National Bureau of Economic Research, Inc.
  7. Jansen, David-Jan & de Haan, Jakob, 2007. "Were verbal efforts to support the euro effective? A high-frequency analysis of ECB statements," European Journal of Political Economy, Elsevier, vol. 23(1), pages 245-259, March.
  8. Dominguez, Kathryn M. E., 2003. "The market microstructure of central bank intervention," Journal of International Economics, Elsevier, vol. 59(1), pages 25-45, January.
  9. Fischer, Andreas M & Zurlinden, Mathias, 1999. "Exchange Rate Effects of Central Bank Interventions: An Analysis of Transaction Prices," Economic Journal, Royal Economic Society, vol. 109(458), pages 662-76, October.
  10. Refet Gürkaynak & Brian P. Sack & Eric T. Swanson, 2004. "Do actions speak louder than words? the response of asset prices to monetary policy actions and statements," Finance and Economics Discussion Series 2004-66, Board of Governors of the Federal Reserve System (U.S.).
  11. Rasmus Fatum & Michael Hutchison, 2002. "ECB Foreign Exchange Intervention and the EURO: Institutional Framework, News, and Intervention," Open Economies Review, Springer, vol. 13(4), pages 413-425, October.
  12. Ben S. Bernanke & Vincent R. Reinhart & Brian P. Sack, 2004. "Monetary Policy Alternatives at the Zero Bound: An Empirical Assessment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 35(2), pages 1-100.
  13. Andreas M. Fischer, 2005. "On the Inadequacy of Newswire Reports for Empirical Research on Foreign Exchange Interventions," Working Papers 2005-02, Swiss National Bank.
  14. Peiers, Bettina, 1997. " Informed Traders, Intervention, and Price Leadership: A Deeper View of the Microstructure of the Foreign Exchange Market," Journal of Finance, American Finance Association, vol. 52(4), pages 1589-1614, September.
  15. Kathryn M. E. Dominguez & Freyan Panthaki, 2007. "The Influence of Actual and Unrequited Interventions," Working Papers 561, Research Seminar in International Economics, University of Michigan.
  16. Jean-Marc Natal, 2004. "Deflation and Deflationary Traps: The Situation in Switzerland," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 140(I), pages 127-170, March.
  17. repec:fip:fedgsq:y:2002:i:nov21 is not listed on IDEAS
  18. Dominguez, Kathryn M.E., 2006. "When do central bank interventions influence intra-daily and longer-term exchange rate movements?," Journal of International Money and Finance, Elsevier, vol. 25(7), pages 1051-1071, November.
  19. Rasmus Fatum & Michael M. Hutchison, . "Is Sterilized Foreign Exchange Intervention Effective After All? An Event Study Approach," EPRU Working Paper Series 99-09, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  20. James A. Clouse & Dale W. Henderson & Athanasios Orphanides & David H. Small & Peter A. Tinsley, 2000. "Monetary policy when the nominal short-term interest rate is zero," Finance and Economics Discussion Series 2000-51, Board of Governors of the Federal Reserve System (U.S.).
  21. Gauti B. Eggertsson & Michael Woodford, 2003. "The Zero Bound on Interest Rates and Optimal Monetary Policy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(1), pages 139-235.
  22. Fatum, Rasmus & Pedersen, Jesper, 2009. "Real-time effects of central bank intervention in the euro market," Journal of International Economics, Elsevier, vol. 78(1), pages 11-20, June.
  23. Takatoshi Ito & Frederic S. Mishkin, 2004. "Two Decades of Japanese Monetary Policy and the Deflation Problem," NBER Working Papers 10878, National Bureau of Economic Research, Inc.
  24. Takatoshi Ito, 2004. "Inflation Targeting and Japan: Why has the Bank of Japan not Adopted Inflation Targeting?," NBER Working Papers 10818, National Bureau of Economic Research, Inc.
  25. Fratzscher, Marcel, 2006. "On the long-term effectiveness of exchange rate communication and interventions," Journal of International Money and Finance, Elsevier, vol. 25(1), pages 146-167, February.
  26. Ben S. Bernanke & Vincent R. Reinhart, 2004. "Conducting Monetary Policy at Very Low Short-Term Interest Rates," American Economic Review, American Economic Association, vol. 94(2), pages 85-90, May.
  27. Fratzscher, Marcel, 2005. "Strategies of exchange rate policy in G3 economies," Economics Letters, Elsevier, vol. 89(1), pages 68-74, October.
  28. Fischer, Andreas M., 2003. "Measurement error and the profitability of interventions: a closer look at SNB transactions data," Economics Letters, Elsevier, vol. 81(1), pages 137-142, October.
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