The Experts below are selected from a list of 1914 Experts worldwide ranked by ideXlab platform
Paul Soderlind - One of the best experts on this subject based on the ideXlab platform.
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verbal interventions and exchange rate policies the case of Swiss Franc cap
Journal of International Money and Finance, 2019Co-Authors: Nikola Mirkov, Igor Pozdeev, Paul SoderlindAbstract:Abstract We ask whether verbal interventions by the Swiss National Bank (SNB) affected market beliefs in the desired direction during the period from 2011 to 2015, when the SNB imposed a cap on the Swiss Franc at 1.20 against the euro. A verbal intervention was a speech by a member of the SNB Governing Board containing the wording “utmost determination” and/or “unlimited quantities”. We show that these verbal interventions lowered uncertainty regarding the future value of euro/Swiss Franc exchange rate and steered market beliefs toward Franc depreciation, therefore reinforcing the credibility of the Swiss Franc cap.
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verbal interventions and exchange rate policies the case of Swiss Franc cap
Social Science Research Network, 2018Co-Authors: Nikola Mirkov, Igor Pozdeev, Paul SoderlindAbstract:We ask whether the markets expected the Swiss National Bank (SNB) to discontinue the 1.20 cap on the Swiss Franc against the euro in January 2015. In the run-up to the SNB announcement, neither options on the euro/Swiss Franc nor FX liquidity indicated a significant shift in market expectations. Furthermore, we find that the SNB's verbal interventions during the period of cap enforcement increased the credibility of the cap by reducing the uncertainty of future euro/Swiss Franc rate. Therefore, we conclude that the markets did not anticipate the discontinuation of the policy.
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toward removal of Swiss Franc cap market expectations and verbal interventions
Research Papers in Economics, 2016Co-Authors: Nikola Mirkov, Igor Pozdeev, Paul SoderlindAbstract:We ask whether the markets expected the Swiss National Bank (SNB) to discontinue the 1.20 cap on the Swiss Franc against the euro in January 2015. In the run-up to the SNB announcement, neither options on the euro/Swiss Franc nor FX liquidity indicated a significant shift in market expectations. Furthermore, we find that the SNB's verbal interventions during the period of cap enforcement reduced the uncertainty of future euro/Swiss Franc rate significantly and therefore reinforced the perceived continuation of the policy.
Peter Kugler - One of the best experts on this subject based on the ideXlab platform.
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the short run impact of interest rates on exchange rates results for the Swiss Franc against the euro and us dollar from daily data 2001 2011
Research Papers in Economics, 2020Co-Authors: Peter KuglerAbstract:This paper provides an econometric analysis of the short-run impact of interest rates on the Swiss Franc exchange rate covering the period January 2001 to June 2011 using daily data. Our model includes both the exchange rate of the Swiss Franc against euro and dollar and uses the plausible assumption that foreign interest rates and the euro-dollar exchange rate are exogenous. In addition, we consider not only money market interest differentials, but also those for 2 and 10 year governments bonds. GMM estimation indicates that a one-percentage point increase in the 3-month Swiss Franc Libor rate leads to a 3.7 % appreciation of the Swiss Franc against euro and dollar. This result seems to be robust with respect to considering only increasing or decreasing interest rates and omitting data around SNB target band adjustments. Our findings appear reasonable and are between the extremely low and high estimates of the impact of Swiss interest rate changes on the exchange rate reported in the literature.
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the historical origins of the safe haven status of the Swiss Franc
Aussenwirtschaft, 2016Co-Authors: Ernst Baltensperger, Peter KuglerAbstract:An empirical analysis of international interest rates and of the behavior of the exchange rate of the Swiss Franc since 1850 leads to the conclusion that World War I marks the origin of the strong currency and safe haven status of the Swiss Franc. Before World War I, interest rates point to a weakness of the Swiss currency against the pound, the guilder and French Franc (from 1881 to 1913) that is shared with the German mark. Thereafter, we see the pattern of the Swiss interest rate island develop and become especially pronounced during the Bretton Woods years. Deviations from metallic parities confirm these findings. For the period after World War I, we establish a strong and stable real and nominal trend appreciation against the pound and the dollar that reflects, to a sizeable extent, inflation differentials.
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why are returns on Swiss Franc assets so low rare events may solve the puzzle
Research Papers in Economics, 2005Co-Authors: Peter Kugler, Beatrice Weder Di MauroAbstract:It is well known that the uncovered interest rate parity fails in the short run but usually holds in the long run. This paper analyses the long and short run interest rate parity of 10 major OECD currencies and finds that there is a long run failure of the uncovered interest rate parity condition for the Swiss Franc. After correcting for exchange rate changes, mean returns on Swiss assets have been significantly lower than in other currencies, an anomaly not found in any other major currency. The long run return differential has been stable over the last 20 years, transitory structural breaks are only found in times of currency turmoil. We suggest that the return anomaly may be due to an insurance premium against very rare catastrophic events, such as a major war. Supporting evidence for this hypothesis comes from two empirical findings. First, we show that the return differential is negatively affected by large unexpected geo-political events. Second we examine historical data on interest rates differentials and show that the abnormally low level of Swiss returns arises after the First World War only.
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why are returns on Swiss Franc asset so low
Research Papers in Economics, 2005Co-Authors: Peter Kugler, Beatrice WederAbstract:As is well known, the uncovered interest rate parity fails in the short run but usually holds in the long run. This paper analyses the long and short run interest rate parity of 10 mayor OECD currencies and finds that there is a long run failure of the uncovered interest rate parity condition for the Swiss Franc. After correcting for exchange rate changes, mean returns on Swiss assets have been significantly lower than in other currencies, an anomaly not found in any other major currency. The long run return differential has been stable over the last 20 years, transitory structural breaks are only found in times of currency turmoil. We suggest that the return anomaly may be due to an insurance premium against very rare catastrophic events, such as a major war. Supporting evidence for this hypothesis comes from two empirical findings: First, we show that the return differential is negatively affected by large unexpected geo-political events. Second we examine historical data on interest rates differentials and show that the abnormally low level of Swiss returns arises after the first world war only.
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international portfolio holdings and Swiss Franc asset returns
Social Science Research Network, 2004Co-Authors: Peter Kugler, Beatrice WederAbstract:This Paper revisits the puzzle of low returns on Swiss Franc assets using a new dataset of international portfolio holdings at Swiss banks. The main findings are as follows. First, we find that the return anomaly is present only for fixed income assets and not for equity. Second, it is mostly due to a long run deviation from uncovered interest rate parity, not a deviation from purchasing power parity. Third, it is unlikely that foreign demand for Swiss assets (possibly due to banking secrecy) is driving down returns: This demand is quantitatively small especially for Swiss Franc fixed income instruments. A dynamic factor analysis confirms that foreign demand had almost no impact on Swiss Franc asset prices. Finally, we propose a new explanation for low returns on Swiss fixed income assets, namely the diversification benefits offered by these instruments. Applying reversed portfolio optimization to back out the implied returns reveals that the estimated pattern of this returns conforms very well to the observed pattern.
Didier Sornette - One of the best experts on this subject based on the ideXlab platform.
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a sovereign wealth fund for switzerland
Social Science Research Network, 2017Co-Authors: Richard Senner, Didier SornetteAbstract:Exchange rates are crucial variables for each economy as they affect the price at which a country can exchange goods and services with other currency areas. A strong domestic currency makes it relatively cheap to import goods and services, but at the same time renders domestic goods and services expensive for other currency holders. Export-oriented countries therefore tend to favour a relatively weak domestic currency. While exchange rates are usually market-determined, central banks have the possibility to weaken or strengthen them by purchasing or selling foreign currencies. Unsurprisingly, countries that export more than they import tend to witness interventions that weaken the domestic currency. Switzerland, a strongly export-oriented country, has seen such interventions since 2008 at a rapidly increasing pace. As a consequence, over the past 9 years, the Swiss National Bank (SNB) has accumulated foreign reserves surpassing the value of the annual Swiss GDP. Despite this evolution lasting over almost a decade now, the SNB’s interventions were and are still continuing to be commonly perceived as a short-term measure to offset temporary upward pressures on the Swiss Franc. We challenge this ‘short-term’ view and argue that the pressures on the Swiss Franc are long-term in nature and hence require a long-term, optimised and sustainable intervention strategy: We propose to build a Swiss sovereign wealth fund.
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constrained random walk models for euro Swiss Franc exchange rates theory and empirics
Swiss Finance Institute Research Paper Series, 2015Co-Authors: Sandro Claudio Lera, Didier SornetteAbstract:We study the performance of the euro/Swiss Franc exchange rate in the extraordinary period from September 6, 2011 and January 15, 2015 when the Swiss National Bank enforced a minimum exchange rate of 1.20 Swiss Francs per euro. Within the general framework built on geometric Brownian motions (GBM), the first-order effect of such a steric constraint would enter a priori in the form of a repulsive entropic force associated with the paths crossing the barrier that are forbidden. It turns out that this naive theory is proved empirically to be completely mistaken. The clue is to realise that the random walk nature of financial prices results from the continuous anticipations of traders about future opportunities, whose aggregate actions translate into an approximate efficient market with almost no arbitrage opportunities. With the Swiss National Bank stated commitment to enforce the barrier, trader's anticipation of this action leads to a volatility of the exchange rate that depends on the distance to the barrier. This effect described by Krugman's model [P.R. Krugman. Target zones and exchange rate dynamics. The Quarterly Journal of Economics, 106(3):669-682, 1991] is supported by non-parametric measurements of the conditional drift and volatility from the data. To the best of our knowledge, our results are the first to provide empirical support for Krugman's model, likely due to the exceptional pressure on the euro/Swiss Franc exchange rate that made the barrier effect particularly strong. Despite the obvious differences between "brainless" physical Brownian motions and complex financial Brownian motions resulting from the aggregated investments of anticipating agents, we show that the two systems can be described with the same mathematics after all. Using a recently proposed extended analogy in terms of a colloidal Brownian particle embedded in a fluid of molecules associated with the underlying order book, we derive that, close to the restricting boundary, the dynamics of both systems is described by a stochastic differential equation with a very small constant drift and a linear diffusion coefficient. As a side result, we present a simplified derivation of the linear hydrodynamic diffusion coefficient of a Brownian particle close to a wall.
Beatrice Weder - One of the best experts on this subject based on the ideXlab platform.
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why are returns on Swiss Franc asset so low
Research Papers in Economics, 2005Co-Authors: Peter Kugler, Beatrice WederAbstract:As is well known, the uncovered interest rate parity fails in the short run but usually holds in the long run. This paper analyses the long and short run interest rate parity of 10 mayor OECD currencies and finds that there is a long run failure of the uncovered interest rate parity condition for the Swiss Franc. After correcting for exchange rate changes, mean returns on Swiss assets have been significantly lower than in other currencies, an anomaly not found in any other major currency. The long run return differential has been stable over the last 20 years, transitory structural breaks are only found in times of currency turmoil. We suggest that the return anomaly may be due to an insurance premium against very rare catastrophic events, such as a major war. Supporting evidence for this hypothesis comes from two empirical findings: First, we show that the return differential is negatively affected by large unexpected geo-political events. Second we examine historical data on interest rates differentials and show that the abnormally low level of Swiss returns arises after the first world war only.
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international portfolio holdings and Swiss Franc asset returns
Social Science Research Network, 2004Co-Authors: Peter Kugler, Beatrice WederAbstract:This Paper revisits the puzzle of low returns on Swiss Franc assets using a new dataset of international portfolio holdings at Swiss banks. The main findings are as follows. First, we find that the return anomaly is present only for fixed income assets and not for equity. Second, it is mostly due to a long run deviation from uncovered interest rate parity, not a deviation from purchasing power parity. Third, it is unlikely that foreign demand for Swiss assets (possibly due to banking secrecy) is driving down returns: This demand is quantitatively small especially for Swiss Franc fixed income instruments. A dynamic factor analysis confirms that foreign demand had almost no impact on Swiss Franc asset prices. Finally, we propose a new explanation for low returns on Swiss fixed income assets, namely the diversification benefits offered by these instruments. Applying reversed portfolio optimization to back out the implied returns reveals that the estimated pattern of this returns conforms very well to the observed pattern.
Nikola Mirkov - One of the best experts on this subject based on the ideXlab platform.
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verbal interventions and exchange rate policies the case of Swiss Franc cap
Journal of International Money and Finance, 2019Co-Authors: Nikola Mirkov, Igor Pozdeev, Paul SoderlindAbstract:Abstract We ask whether verbal interventions by the Swiss National Bank (SNB) affected market beliefs in the desired direction during the period from 2011 to 2015, when the SNB imposed a cap on the Swiss Franc at 1.20 against the euro. A verbal intervention was a speech by a member of the SNB Governing Board containing the wording “utmost determination” and/or “unlimited quantities”. We show that these verbal interventions lowered uncertainty regarding the future value of euro/Swiss Franc exchange rate and steered market beliefs toward Franc depreciation, therefore reinforcing the credibility of the Swiss Franc cap.
-
verbal interventions and exchange rate policies the case of Swiss Franc cap
Social Science Research Network, 2018Co-Authors: Nikola Mirkov, Igor Pozdeev, Paul SoderlindAbstract:We ask whether the markets expected the Swiss National Bank (SNB) to discontinue the 1.20 cap on the Swiss Franc against the euro in January 2015. In the run-up to the SNB announcement, neither options on the euro/Swiss Franc nor FX liquidity indicated a significant shift in market expectations. Furthermore, we find that the SNB's verbal interventions during the period of cap enforcement increased the credibility of the cap by reducing the uncertainty of future euro/Swiss Franc rate. Therefore, we conclude that the markets did not anticipate the discontinuation of the policy.
-
toward removal of Swiss Franc cap market expectations and verbal interventions
Research Papers in Economics, 2016Co-Authors: Nikola Mirkov, Igor Pozdeev, Paul SoderlindAbstract:We ask whether the markets expected the Swiss National Bank (SNB) to discontinue the 1.20 cap on the Swiss Franc against the euro in January 2015. In the run-up to the SNB announcement, neither options on the euro/Swiss Franc nor FX liquidity indicated a significant shift in market expectations. Furthermore, we find that the SNB's verbal interventions during the period of cap enforcement reduced the uncertainty of future euro/Swiss Franc rate significantly and therefore reinforced the perceived continuation of the policy.
