Exchange rate floor and central bank balance sheets: Simple spillover tests of the Swiss franc.
Adrien Alvero and Andreas M. Fischer
This paper examines spillover and spillback effects of unconventional monetary policies conducted by the European Central Bank (ECB) and Swiss National Bank (SNB) on the exchange rate’s distribution. The empirical setup examines the price response of EURCHF risk reversal to a change in ECB and SNB balance sheets, with a distinction for the period of the minimum exchange rate (floor). The analysis finds only weak evidence of spillover effects from the ECB, while the spillback effect from the SNB balance sheet is robust during the floor period. Comment by Eric Jondeau
The banking sector and the Swiss financial account during the financial and European debt crises.
Raphael A. Auer and Cédric Tille
The US financial crisis and the later Eurozone crisis have substantially affected capital flows into and out of financial centers like Switzerland. We focus on the pattern of capital flows involving the Swiss banking industry. We first rely on balance-of-payment statistics and show that net banking inflows rose during the acute phases of the crises, albeit with a contrasting pattern. In the wake of the collapse of Lehman Brothers, net inflows were driven by a large retrenchment towards the domestic market by Swiss banks. By contrast, the net inflows from mid-2011 to mid-2012 were driven by large flows into Switzerland by foreign banks. We then use more detailed data from the Swiss banking statistics which allow us to contrast the situation across different banks and currencies. We show that the cycle during the US crisis in bank flows was driven strongly by exposures in US dollars, and to a large extent by Swiss-owned banks. During the Eurozone crisis by contrast, the flight to the Swiss franc and the move away from the Euro was also driven by banks that are located in Switzerland, yet are foreign-owned. In addition, while the demand for the franc was driven by both foreign and domestic customers during mid-2011 to early 2013, domestic demand took a prominent role thereafter.
The historical origins of the safe haven status of the Swiss franc.
Ernst Baltensperger and Peter Kugler
An empirical analysis of international interest rates and of the behavior of the exchange rate of the Swiss franc since 1850 leads to the conclusion that World War I marks the origin of the strong currency and safe haven status of the Swiss franc. Before World War I, interest rates point to a weakness of the Swiss currency against the pound, the guilder and French franc (from 1881 to 1913) that is shared with the German mark. Thereafter, we see the pattern of the Swiss interest rate island develop and become especially pronounced during the Bretton Woods years. Deviations from metallic parities confirm these findings. For the period after World War I, we establish a strong and stable real and nominal trend appreciation against the pound and the dollar that reflects, to a sizeable extent, inflation differentials. Comment by Tobias Straumann
Risk premia on Swiss government bonds and sectoral stock indexes during international crises.
This paper assesses the sensitivity of excess returns on Swiss government bond and sectoral stock indexes to risk factors during international crisis and non-crisis periods over the sample period from January 1995 to December 2014. The empirical results show that assets that were closely linked to the Swiss economy, such as government bonds or stocks from “non-tradable” sectors, exhibited safe haven characteristics during the Eurozone sovereign debt crisis and in the noncrisis periods. This finding does not pertain to assets closely linked to international economic developments, such as stocks from tradable goods sectors.