Foreign exchange interventions under a one-sided target zone regime and the Swiss franc

Arbeitspapier

From September 2011 to January 2015, the Swiss National Bank (SNB) implemented a minimum exchange rate regime (i.e. a one-sided target zone) vis-a-vis the euro to fight deflationary pressures in the aftermath of the Great Financial Crisis. During this period of unconventional monetary policy, the SNB faced mounting criticism from the media and the public on the sizable balance sheet risks that it was incurring. Motivated by this episode, I present a structural model embedded within the target zone framework developed by Krugman (1991) that allows monetary authorities to determine ex-ante the maximum size of foreign exchange market interventions that are expected to be necessary to implement and maintain a one-sided target zone. An empirical application of the proposed model to the aforementioned episode reveals that it is well suited to explain the actual size of these interventions and that, in January 2015, the SNB's euro purchases might indeed have been large without the abandonment of the minimum exchange rate regime, which is consistent with the official statements of the SNB in the aftermath of that episode.

Angaben zum Objekt

• ISBN: 978-3-95729-701-3
• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: Deutsche Bundesbank Discussion Paper ; No. 21/2020

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Index Numbers and Aggregation; Leading indicators ; Model Construction and Estimation ; Business Fluctuations; Cycles ; Prices, Business Fluctuations, and Cycles: Forecasting and Simulation: Models and Applications ; Interest Rates: Determination, Term Structure, and Effects ; Asset Pricing; Trading Volume; Bond Interest Rates ; Urban, Rural, Regional, Real Estate, and Transportation Economics: Housing Demand ; Urban, Rural, Regional, Real Estate, and Transportation Economics: Government Policy ; Housing Supply and Markets
• Thema: Foreign exchange interventions ; minimum exchange rate ; reaction function ; reflected Brownian motion ; Swiss franc ; Swiss National Bank ; target zone ; unconventional monetary policy

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Hertrich, Markus
• Ereignis: Veröffentlichung
• (wer): Deutsche Bundesbank
• (wo): Frankfurt a. M.
• (wann): 2020

Weitere Informationen

• Handle: http://hdl.handle.net/10419/215807
• Letzte Aktualisierung: 10.03.2025, 11:43 MEZ