This paper quantifies Switzerland's gains from trade using a multi-country multi-sector general equilibrium Ricardian trade model. The model calibration relies on a novel data source on sectoral linkages to provide a Switzerland-centric analysis. I find that using this novel dataset generates 13.4% higher estimates of the gains from trade for Switzerland, as other data sources tend to underestimate Swiss sectors' exposure to foreign markets. Using this quantitative framework, I then perform a policy-oriented counterfactual analysis to assess the gains from Switzerland's trade integration. I find that Switzerland's wide free trade agreement (FTA) network is associated with small real GDP gains but significantly shapes trade flows. Without Switzerland's FTA network, Swiss real exports decline by -6.9%, while imports decline by -7.6%. An FTA with the US raises real GDP in Switzerland and in the US, albeit only slightly, while CH-US real bilateral trade increases by approximately +7%.
A growing body of literature has highlighted two important caveats to the credit-to-GDP gap as advocated by the Bank for International Settlements (BIS). The first relates to the approach used to normalise credit (i.e., dividing nominal credit by GDP). In this regard, critics have argued that a normalised measure of credit runs the risk of being affected by GDP movements that may or may not be relevant. The second relates to the use of the Hodrick-Prescott (HP) filter to estimate the gap's trend component. In this regard, critics have emphasised several measurement problems associated with using the HP filter. In this paper, we assess the relevance of these critiques for Switzerland. While we find no compelling evidence suggesting a need to deviate from using the BIS gap as a reliable excess credit measure, our findings do emphasise the need to interpret its signal with caution, particularly during long-lasting boom phases and subsequent bust phases. In these situations in particular, authorities should strengthen their decision-making frameworks with additional credit relevant indicators.
