Arbeitspapier

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

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.

ISBN
978-3-95729-701-3
Language
Englisch

Bibliographic citation
Series: Deutsche Bundesbank Discussion Paper ; No. 21/2020

Classification
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
Subject
Foreign exchange interventions
minimum exchange rate
reaction function
reflected Brownian motion
Swiss franc
Swiss National Bank
target zone
unconventional monetary policy

Event
Geistige Schöpfung
(who)
Hertrich, Markus
Event
Veröffentlichung
(who)
Deutsche Bundesbank
(where)
Frankfurt a. M.
(when)
2020

Handle
Last update
10.03.2025, 11:43 AM CET

Data provider

This object is provided by:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.

Object type

  • Arbeitspapier

Associated

  • Hertrich, Markus
  • Deutsche Bundesbank

Time of origin

  • 2020

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