Banque nationale suisse

Katrin Assenmacher-Wesche and Stefan Gerlach: Money Growth, Output Gaps and Inflation at Low and High Frequency: Spectral Estimates for Switzerland


While monetary targeting has become increasingly rare, many central banks attach weight to money growth in setting interest rates. This raises the issue of how money can be combined with other variables, in particular the output gap, when analysing inflation. The Swiss National Bank emphasises that the indicators it uses to do so vary across forecasting horizons. While real indicators are employed for short-run forecasts, money growth is more important at longer horizons. Using band spectral regressions and causality tests in the frequency domain, we show that this interpretation of the inflation process fits the data well.

Hansjörg Lehmann and Michael Manz: The Exposure of Swiss Banks to Macroeconomic Shocks - an Empirical Investigation


Assessing financial stability is an issue of rapidly growing importance to central banks and banking authorities. This paper explores an extensive panel data set of Swiss banks to identify macroeconomic influencing factors on bank profitability and to quantify their impact on bank capitalization. We find evidence of a significant effect of various macroeconomic variables as e.g. real growth or interest rate shocks on bank earnings. However, our results suggest that the Swiss banking system is quite robust against macroeconomic shocks. Only a joint occurrence of a recession, rising interest rates and falling stock prices would lead to substantial losses in the Swiss banking industry.

Martin Brown and Christian Zehnder: Credit Reporting, Relationship Banking, and Loan Repayment


This paper examines the impact of credit reporting on the repayment behavior of borrowers. We implement an experimental credit market in which loan repayment is not third-party enforceable. We then compare market outcome with a public credit registry to that without a credit registry. This experiment is conducted for two market environments: first, a market in which repeat interaction between borrowers and lenders is not feasible and, second, a market in which borrowers and lenders can choose to trade repeatedly with each other. In the market without repeat interaction the credit market collapses without a credit registry, as lenders rightly fear that borrowers will default. The introduction of a registry in this environment significantly raises repayment rates and the credit volume extended by lenders. When repeat transactions are possible a credit registry is not necessary to sustain high market performance as relationship banking enforces repayment even when lenders cannot share information. In this environment credit reporting has little impact on market efficiency, it does however affect trading structure and distribution. The presence of a credit registry leads to fewer banking relationships and reduces the ability of lenders to extract rents from such relationships.

Charlotte Christiansen and Angelo Ranaldo: Realized Bond-Stock Correlation: Macroeconomic Announcement Effects


We investigate the effects of macroeconomic announcements on the realized correlation between bond and stock returns. Our results deliver insights into the dominating drivers of bond-stock comovements. We find that it is not so much the surprise component of the announcement, but the mere fact that an announcement occurs that influences the realized bond-stock correlation. The impact of macroeconomic announcements varies across the business cycle. Announcement effects are highly dependent on the sign of the realized bond-stock correlation which has recently gone from positive to negative. Macroeconomic announcement effects on realized bond and stock volatilities are also investigated.

Andreas M. Fischer: Measuring Income Elasticity for Swiss Money Demand: What do the Cantons say about Financial Innovation?


Recent time-series evidence has re-confirmed the forecasting ability of Swiss broad money. The same money demand studies and others, however, find that the income elasticity is greater than one. Such parameter estimates are difficult to reconcile with transactions demand theory. This study re-examines the estimates for income elasticity in money demand based on cross-regional evidence for Switzerland. Particular attention is given to the influence of regional financial sophistication. The cross-cantonal results find that the income elasticity lies between 0.4 and 0.6. This discrepancy between the two empirical methodologies has important consequences for the conduct of Swiss monetary policy.

Andreas M. Fischer: On the Inadequacy of Newswire Reports for Empirical Research on Foreign Exchange Interventions


Newswire reports have become an accepted tool for empirical studies analyzing informational asymmetries in FX markets. This paper tests the accuracy of such reports for Swiss interventions in the foreign exchange market. The evidence finds that the time stamp of the reports does not always lie near the recorded time of the first intervention trade as is commonly assumed in market microstructure studies. The standard deviation of the time difference is measured in hours and not in minutes. These and other regression results question the accuracy of newswire reports for Swiss interventions.

Hasan Bakhshi, Hashmat Khan and Barbara Rudolf: The Phillips curve under state-dependent pricing


This paper is related to a large recent literature studying the Phillips curve in sticky-price equilibrium models. It differs in allowing for the degree of price stickiness to be determined endogenously. A closed-form solution for short-term inflation is derived from the dynamic stochastic general equilibrium (DSGE) model with state-dependent pricing originallydev eloped byDotsey , King and Wolman. This generalised Phillips curve encompasses the New Keynesian Phillips curve (NKPC) based on Calvo-type price-setting as a special case. It describes current inflation as a function of lagged inflation, expected future inflation, and current and expected future real marginal costs. The paper demonstrates that inflation dynamics generated bythe model for a broad class of time and state-dependent price-setting behaviours are well approximated bythe popular hybrid NKPC (with one lag of inflation) in a low-inflation environment. This provides an explanation of whythe hybrid NKPC performs well in describing inflation dynamics across industrial countries. It implies, however, that the reduced-form coefficients of the hybrid NKPC maynot have a structural interpretation.

Diana Hancock and Urs W. Birchler: What Does the Yield on Subordinated Bank Debt Measure?


We provide evidence that a bank's subordinated debt yield spread is not, by itself, a sufficient measure of default risk. We use a model in which subordinated debt is held by investors with superior knowledge (informed investor). First, we show that in theory the yield spread on subordinated debt must compensate investors for expected loss plus give them an incentive not to prefer senior debt. Second we present strong empirical evidence in favor of the informed investor hypothesis and of the existence of the incentive premium predicted by the model. Using data on the timing and pricing of public debt issues made by large U.S. banking organizations during the 1985-2002 period, we find that banks issue relatively more subordinated debt in good times, i.e. when informed investors have good news. Spreads at issuance (corrected for sample selection bias) react to (superior) private and to public information, in line with the comparative statics of the postulated incentive premium. Interestingly, as the model predicts, the influence of sophisticated investors' information on the subordinated yield spread became weaker after the introduction of prompt corrective action and depositor preference reforms, while the influence of public risk perception grew stronger. Finally, our model explains anomalies from the empirical literature on subordinated debt spreads and from market interviews (e.g. limited sensitivity to bank-specific risk and the ballooning of spreads in bad times). We conclude that a bank's subordinated yield spread conveys important information if interpreted together with its senior spread and with other banks' subordinated yield spreads.

Katrin Assenmacher-Wesche and M. Hashem Pesaran: A VECX* model of the Swiss economy


This paper applies the modelling strategy of Garratt, Lee, Pesaran and Shin (2003) to the estimation of a structural cointegrated VAR model that relates the core macroeconomic variables of the Swiss economy to current and lagged values of a number of key foreign variables. We identify and test a long-run structure between the variables. Moreover, we analyse the dynamic properties of the model using Generalised Impulse Response Functions. In its current form the model can be used to produce forecasts for the endogenous variables either under alternative specifi cations of the marginal model for the exogenous variables, or conditional on some pre-specifi ed path of those variables (for scenario forecasting). In due course the Swiss VECX* model can also be integrated within a Global VAR (GVAR) model where the foreign variables of the model are determined endogenously.

Jonas Stulz: Exchange rate pass-through in Switzerland: Evidence from vector autoregressions


This study investigates the pass-through of exchange rate and import price shocks to different aggregated prices in Switzerland. The baseline analysis is carried out with recursively identified vector autoregressive (VAR) models. The data set comprises monthly observations, and pass-through effects are quantified by means of impulse response functions. Evidence shows that the exchange rate pass-through to import prices is substantial (although incomplete), but only moderate to total consumer prices. Moreover, a sub-sample analysis reveals that the pass-through decreased in the 1990s below the levels recorded in previous decades. This decrease was more pronounced for the pass-through to consumer prices than that to import prices, and it coincided with a shift towards lower and more stable consumer price inflation.


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