Banque nationale suisse

Ernst Baltensperger, Philipp M. Hildebrand and Thomas J. Jordan: The Swiss National Bank's monetary policy concept - an example of a 'principles-based' policy framework


The practice of monetary policy has evolved a great deal since the early 1990s. This evolution was significantly influenced by rapid developments in the theory of monetary policy. A new consensus about 'principles-based' monetary policy appears to be emerging. It marries a firm long-term anchor for nominal stability, rooted in the original ideas behind inflation targeting, with short-term flexibility, based on a more discretionary and pragmatic approach to monetary policy. The SNB's monetary policy framework - with a firm nominal anchor but with an emphasis on the need for flexibility - reflects, to a considerable degree, the emerging academic consensus about best-practice monetary policy. With its successful seven-year track record, it may serve as an interesting case study for a policy aiming at an intermediate position between full discretion and rigidly defined short-term inflation targeting.

Caesar Lack: Forecasting Swiss inflation using VAR models


A procedure that has been used at the Swiss National Bank for selecting vector-autoregressive (VAR) models in order to forecast Swiss consumer price inflation is presented. In order to examine and improve the quality of the procedure, it is submitted to several modifications and the results are compared with one another. Combining forecasts substantially improves the quality of the forecasts. Models specified with respect to levels of variables are superior to those specified with respect to differences in variables. Bank loans and the monetary aggregate M3 are the most important variables for inflation forecasting. The optimized procedure reduces the root mean squared error (RMSE) of the inflation forecast to one third of the RMSE of a naive "no change" forecast over the period from 1987 to 2005.

Nicolas Alexis Cuche-Curti, Harris Dellas and Jean-Marc Natal: A dynamic stochastic general equilibrium model for Switzerland


This paper presents a DSGE (dynamic stochastic general equilibrium) model of the Swiss economy used since 2007 in the monetary policy decision process at the Swiss National Bank. In addition to forecasting the likely course of main macro variables under various scenarios for the Swiss economy, the model DSGE-CH serves as a laboratory for studying business cycles and examining the effects of actual and hypothetical monetary policies. The microfounded model DSGE-CH represents Switzerland as a small open economy with optimizing economic agents facing several real and nominal rigidities and exogenous foreign and domestic shocks. The comparison of the model's implications with the real world indicates that DSGE-CH performs well along standard dimensions. It captures the overall stochastic structure of the Swiss economy as represented by the moments of its key macroeconomic variables, furthermore, it has appropriate dynamic properties, as judged by its impulse response functions. Finally, it quite accurately replicates the historical path of major Swiss variables.

Mathias Zurlinden: Credit in the monetary transmission mechanism: An overview of some recent research using Swiss data


Studies on the role of the credit channel have flourished in recent years. This paper focuses on the work that has been carried out using Swiss data. It begins with some general features characterizing the credit channel and demonstrating its empirical implications. It then provides an overview of the empirical papers. For the most part, these papers test cross-sectional implications of the credit view. The overall evidence suggests that a credit channel exists but a precise assessment of the effects of monetary policy operating through this channel is still a long way off. Much work has yet to be done, not least on the data side, in order to obtain a clear view of the quantitative importance of the credit channel for Switzerland.

Samuel Reynard: Financial Market Participation and the Apparent Instability of Money Demand


This paper uses multi-period cross-sectional data on financial assets holdings to shed light on the postwar stability of money demand in the United States. I first present a new measure of the evolution of financial market participation, by relating participation to the extensive margins of money demand, and quantify the influence of wealth on participation decisions. I then relate the increase in participation to the period of "missing money" and to the subsequent higher interest rate elasticity of monetary aggregates. The paper indicates that time series estimations of money demand relationships are inherently flawed and tend to inappropriately suggest instability.

Raphael Anton Auer: What Drives Target2 Balances? Evidence From a Panel Analysis


What are the drivers of the large Target2 (T2) balances that have emerged in the European Monetary Union since the start of the financial crisis in 2007? This paper examines the extent to which the evolution of national T2 balances can be statistically associated with cross-border financial flows and current account (CA) balances. In a quarterly panel spanning the years 1999 to 2012 and twelve countries, it is shown that while the CA and the evolution of T2 balances were unrelated until the start of the 2007 financial crisis, since then, the relation between these two variables has become statistically significant and economically sizeable. This reflects the partial "sudden stop" to private sector capital that funded CA imbalances beforehand. I next examine how different types of financial flows have evolved over the last years and how this can be related to the evolution of T2 balances. While changes in cross-border positions in the interbank market are associated with increasing T2 imbalances, cross-border inter-office flows between banks belonging to the same financial institution have reduced T2 imbalances. Flows to the banking sector that originate from private investors and non-financial firms are large in magnitude, but are only weakly correlated with the evolution of T2 balances; changes in banks' holdings of foreign government debt and deposit flows are strongly correlated with the post-2007 evolution of T2 balances. Overall, these findings point to a sizeable transfer of risk from the private to the public sector within T2 creditor nations the via the use of central bank liquidity.

Raphael Anton Auer and Raphael S. Schoenle: Market Structure and Exchange Rate Pass-Through


In this paper, we examine the extent to which market structure and the way in which it affects pricing decisions of profit-maximizing firms can explain incomplete exchange rate passthrough. To this purpose, we evaluate how pass-through rates vary across trade partners and sectors depending on the mass and size distribution of firms affected by a particular exchange rate shock. In the first step of our analysis, we decompose bilateral exchange rate movements into broad US Dollar (USD) movements and trade-partner currency (TPC) movements. Using micro data on US import prices, we show that the pass-through rate following USD movements is up to four times as large as the pass-through rate following TPC movements and that the rate of pass-through following TPC movements is increasing in the trade partner's sector-specific market share. In the second step, we draw on the parsimonious model of oligopoly pricing featuring variable markups of Dornbusch (1987) and Atkeson and Burstein (2008) to show how the distribution of firms' market shares and origins within a sector affects the trade-partner specific pass-through rate. Third, we calibrate this model using our exchange rate decomposition and information on the origin of firms and their market shares. We find that the calibrated model can explain a substantial part of the variation in import price changes and pass-through rates across sectors, trade partners, and sector-trade partner pairs.

Andreas Kropf and Philip Ulrich Sauré: Fixed Costs per Shipment


Exporting firms do not only decide how much of their products they ship abroad but also at which frequency. Doing so, they face a trade-off between saving on fixed costs per shipments (by shipping large amounts infrequently) and saving on storage costs (by delivering just in time with small and frequent shipments). The firm's optimal choice defines a mapping from size and frequency of shipments to fixed costs per shipment. We use a unique dataset of Swiss cross-border trade on the transaction level to analyze the size and shape of the underlying fixed costs. The data suggest that for the average Swiss exporter the fixed costs per shipment are economically important: about one percent of the value of export or at a net present value of 7790 CHF. We document that the imputed fixed costs per shipment correlate negatively with language commonalities, trade agreements and geographic proximity.


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