This paper evaluates the relative importance of commodity price shocks in the U.S. business cycle. Therefore, we extend the standard set of business cycle shocks to include unexpected changes in commodity prices. The resulting SVAR shows that commodity price shocks are a very important driving force of macroeconomic fluctuations - second only to investment-specific technology shocks - particularly with respect to inflation. Neutral technology shocks and monetary policy shocks, on the other hand, seem less relevant at business cycle frequencies. Neutral technology shocks rather play an important role at low frequencies.
We analyse bilateral Swiss franc exchange rate returns in an asset pricing framework to evaluate the Swiss franc's safe haven characteristics. A "safe haven" currency is a currency that offers hedging value against global risk, both on average and in particular in crisis episodes. To explore these issues we estimate the relationship between exchange rate returns and risk factors in augmented UIP regressions, using recently developed econometric methods to account for the possibility that the regression coefficients may be changing over time. Our results highlight that in response to increases in global risk the Swiss franc appreciates against the euro as well as against typical carry trade investment currencies such as the Australian dollar, but depreciates against the US dollar, the Yen and the British pound. Thus, the Swiss franc exhibits safe-haven characteristics against many, but not all other currencies. We find statistically significant time variation in the relationship between Swiss franc returns and risk factors, with this link becoming stronger in times of stress.
This paper analyzes the way in which international financial integration affects the transmission of monetary policy in a New Keynesian open economy framework. It extends Woodford's (2010) analysis to a model with a richer financial markets structure, allowing for international trading in multiple assets and subject to financial intermediation costs. Two different forms of financial integration are considered, in particular an increase in the level of gross foreign asset holdings and a decrease in the costs of international asset trading. The simulations in the calibrated model show that none of the analyzed forms of financial integration undermine the effectiveness of monetary policy in influencing domestic output and inflation. Under realistic parameterizations, monetary policy is more, rather than less, effective as the positive impact of strengthened exchange rate and wealth channels more than offsets the negative impact of weakened interest rate channels. The paper also analyzes the interaction of financial integration with trade integration, varying both the importance of trade linkages and the degree of exchange rate pass-through. These interactions show that the positive effects of financial integration are amplified by trade integration. Overall, monetary policy is most effective in parameterizations with the highest degree of both financial and real integration.
Motivated by the search for instruments to contain future housing bubbles, we examine the impact of transaction taxes and capital gains taxes on residential house price growth. We exploit the variation in taxation across Swiss cantons, as well as within-canton changes in taxation over time. We relate these taxes to house price growth observed for 92 regions of the country during the period 1985 - 2009. Our results suggest that higher taxes on capital gains exacerbate house price dynamics while transaction taxes have no impact on house price growth. These findings support the existence of a lock-in effect of capital gains taxes on housing supply. They further suggest that taxes on real estate capital gains and transaction values are not suitable measures to prevent excessive house price growth.
This study documents the SNB's ARIMA model based on disaggregated CPI data used to produce inflation forecasts over the short-term horizon, and evaluates its forecasting performance. Our findings suggest that the disaggregate ARIMA model for the Swiss CPI performed better than relevant benchmarks. In particular, estimating ARIMA models for individual CPI expenditure items and aggregating the forecasts from these models gives better results than directly applying the ARIMA methodto the total CPI. We then extend the model to factor in changes in the collection frequency of the Swiss CPI data and show that this extension further improves the forecasting performance.
This paper carries out an empirical investigation of the impact on bond spreads of the announcement, purchases and exit from the SNB's bond purchase program in 2009-2010. We find evidence in favor of a narrowing yield spread of covered bonds as a result of the program. The effect materialized in the days following the announcement of the SNB's intention to buy bonds issued by private sector borrowers, as markets learned that the SNB was buying covered bonds. The specification of the bond spreads used allows us to identify this effect as a discounted portfolio balance effect of the expected purchases, as distinct from policy signalling. In contrast, we find no evidence of a further effect of the actual purchases and subsequent sales on bond spreads.
This paper presents a method to conduct early estimates of GDP growth in Germany. We employ MIDAS regressions to circumvent the mixed frequency problem and use pooling techniques to summarize efficiently the information content of the various indicators. More specifically, we investigate whether it is better to disaggregate GDP (either via total value added of each sector or by the expenditure side) or whether a direct approach is more appropriate when it comes to forecasting GDP growth. Our approach combines a large set of monthly and quarterly coincident and leading indicators and takes into account the respective publication delay. In a simulated out-of-sample experiment we evaluate the different modelling strategies conditional on the given state of information and depending on the model averaging technique. The proposed approach is computationally simple and can be easily implemented as a nowcasting tool. Finally, this method also allows to retrace the driving forces of the forecast and hence enables the interpretability of the forecast outcome.
We analyse deviations between interest rates paid in the Swiss franc unsecured money market and the respective Libor rate. First, banks that have access to the secured interbank market and the SNB's monetary policy operations pay less than banks without access. Second, domestically unchartered, foreign banks pay more than domestic banks. We find that these segmentations are limited both during normal times and during the financial crisis starting 2007 thanks to open access to the secured interbank market and the SNB's monetary policy operations. These findings reveal that a neglected aspect of monetary policy implementation matters, namely access policy.
We document that in the European car industry, exchange rate pass-through is larger for low than for high quality cars. To rationalize this pattern, we develop a model of quality pricing and international trade based on the preferences of Musa and Rosen (1978). Firms sell goods of heterogeneous quality to consumers that differ in their willingness to pay for quality. Each firm produces a unique quality of the good and enjoys local market power, which depends on the prices and qualities of its closest competitors. The market power of a firm depends on the prices and qualities of its direct competitors in the quality dimension. The top quality firm, being exposed to just one direct competitor, enjoys the highest market power and equilibrium markup. Because higher quality exporters are closer to the technological leader, markups are generally increasing in quality, exporting is relatively more profitable for high quality than for low quality firms, and the degree of exchange rate pass-through is decreasing in quality.
Deviations of national industrial production indexes from trend explain time variation in excess returns on the G7 countries' stock markets. This paper highlights that this finding is driven by a global, common component in the national production gaps. The global component is not a mirror image of the U.S. business cycle. Quite to the contrary, a "rest-ofthe-world" production gap explains time variation in U.S. stock market excess returns while the U.S.-specific production gap does not. However, both U.S.-specific and global gap components explain time-varying excess returns on U.S. bonds. The relative importance of the U.S.-specific risk gap increases with the maturity of bonds.
