This paper presents a portfolio model of asset price effects arising from central bank large-scale asset purchases, commonly known as quantitative easing (QE). Two financial frictions—segmentation of the market for central bank reserves and imperfect asset substitutability—give rise to two distinct portfolio effects. One derives from the reduced supply of the purchased assets. The other runs through banks’ portfolio responses to the created reserves and is independent of the assets purchased. The results imply that central bank reserve expansions can affect long-term bond prices even in the absence of long-term bond purchases.
This paper examines the relationship between the dispersion of changes in prices and the medium-run exchange rate pass-through in Swiss data. The prices considered are the elementary indices that form the basic building blocks for the construction of the CPI. The results indicate that uctuations in the crosssectional dispersion of changes in these price indices inform about variation in aggregate pass-through at business cycle frequencies. Because these data are readily available at monthly frequencies, they can be used in real time to help gauge the pass-through of exchange rate changes to retail prices.
The interaction of macroeconomic variables may change as the nominal short-term interest rates approach zero. In this paper, we propose an empirical model that captures these changing dynamics with a time-varying parameter vector autoregressive process. State-dependent parameters are determined by a latent state indicator. This state indicator follows a distribution with time-varying probabilities affected by the lagged interest rate. As the interest rate enters the critical zero lower bound (ZLB) region, the dynamics between the variables and the effect of shocks change. We estimate the model with Bayesian methods and explicitly consider that the interest rate may be constrained in the ZLB region. We provide an estimate of the latent rate, i.e., a lower interest rate than the observed level, which is state- and model-consistent. The endogenous specification of the state indicator permits dynamic forecasts of the state and system variables. In the application of the model to the Swiss data, we evaluate state-dependent impulse responses to a risk premium shock that is identified with sign restrictions. Additionally, we discuss scenario-based forecasts and evaluate the probability of the system exiting the ZLB region that is only based on the inherent dynamics.
The interaction of macroeconomic variables may change as the nominal short-term interest rates approach zero. In this paper, we propose an empirical model that captures these changing dynamics with a time-varying parameter vector autoregressive process. State-dependent parameters are determined by a latent state indicator. This state indicator follows a distribution with time-varying probabilities affected by the lagged interest rate. As the interest rate enters the critical zero lower bound (ZLB) region, the dynamics between the variables and the effect of shocks change. We estimate the model with Bayesian methods and explicitly consider that the interest rate may be constrained in the ZLB region. We provide an estimate of the latent rate, i.e., a lower interest rate than the observed level, which is state- and model-consistent. The endogenous specification of the state indicator permits dynamic forecasts of the state and system variables. In the application of the model to the Swiss data, we evaluate state-dependent impulse responses to a risk premium shock that is identified with sign restrictions. Additionally, we discuss scenario-based forecasts and evaluate the probability of the system exiting the ZLB region that is only based on the inherent dynamics.
In this paper, we study the reaction of the CHF and JPY to macroeconomic surprises and changes in the broader market environment before and during the crisis using high-frequency data. We show that both currencies are traditionally highly sensitive to macroeconomic surprises. This link, however, was significantly magnified during the crisis and effects persisted during times when monetary authorities implemented specific measures to limit the appreciation trend. We also find some evidence that, during the crisis, the CHF and JPY tended to respond more strongly to surprises generating an appreciation than to surprises leading to a depreciation. Both currencies also systematically respond to changes in the general market environment. This result is robust to the use of two measures of the market environment: VIX and on a novel index based on Bloomberg wires. Finally, our results suggest that negative macroeconomic surprises and deteriorations in the market environment are two distinct channels generating appreciation pressure on these two safe-haven currencies.
In this paper, we study the reaction of the CHF and JPY to macroeconomic surprises and changes in the broader market environment before and during the crisis using high-frequency data. We show that both currencies are traditionally highly sensitive to macroeconomic surprises. This link, however, was significantly magnified during the crisis and effects persisted during times when monetary authorities implemented specific measures to limit the appreciation trend. We also find some evidence that, during the crisis, the CHF and JPY tended to respond more strongly to surprises generating an appreciation than to surprises leading to a depreciation. Both currencies also systematically respond to changes in the general market environment. This result is robust to the use of two measures of the market environment: VIX and on a novel index based on Bloomberg wires. Finally, our results suggest that negative macroeconomic surprises and deteriorations in the market environment are two distinct channels generating appreciation pressure on these two safe-haven currencies.
When assessing the effect of changes in wealth on household expenditures, most empirical studies have used cointegration-based approaches. These approaches rely on the existence of a stable long-run relationship among consumption, wealth and income. However, in Switzerland no such relationship seems to be present after 2001. Motivated by this issue, this paper applies a recently suggested approach to estimating long-run wealth effects on consumption that does not rely on cointegration. This new approach relies on sticky consumption growth, which can be motivated by consumption habits or sticky expectations. In both cases, long-run wealth effects are the result of short-run reactions of households to changes in wealth which become long-lasting. Using this methodology, the estimated wealth effects on consumption in Switzerland are larger than suggested by cointegration-based estimates. Furthermore, the results show that there seems to be a remarkably high degree of consumption stickiness in Switzerland.
When assessing the effect of changes in wealth on household expenditures, most empirical studies have used cointegration-based approaches. These approaches rely on the existence of a stable long-run relationship among consumption, wealth and income. However, in Switzerland no such relationship seems to be present after 2001. Motivated by this issue, this paper applies a recently suggested approach to estimating long-run wealth effects on consumption that does not rely on cointegration. This new approach relies on sticky consumption growth, which can be motivated by consumption habits or sticky expectations. In both cases, long-run wealth effects are the result of short-run reactions of households to changes in wealth which become long-lasting. Using this methodology, the estimated wealth effects on consumption in Switzerland are larger than suggested by cointegration-based estimates. Furthermore, the results show that there seems to be a remarkably high degree of consumption stickiness in Switzerland.
