Template-type: ReDIF-Paper 1.0
Author-Name: Katarina Juselius
Author-Name-First: Katarina
Author-Name-Last: Juselius
Author-Person: pju54
Author-Name: Katrin Assenmacher
Author-Name-First: Katrin
Author-Name-Last: Assenmacher
Author-Person: pwe101
Title: Real exchange rate persistence: The case of the Swiss franc-US dollar rate
Abstract: Asset prices tend to undergo wide swings around long-run equilibrium values, which can have detrimental effects on the real economy. To get a better understanding of how the financial sector and the real economy interact, this paper models the long swings in the Swiss franc-US dollar foreign currency market using the I(2) Cointegrated VAR model. The results show strong evidence of self-reinforcing feedback mechanisms in the Swiss-US foreign exchange market that are consistent with the observed pronounced persistence in Swiss-US parity conditions. Generally, the results provide support for models allowing expectations formation in financial markets to be based on imperfect information.
Length: 41 pages
Creation-Date: 2015
Contact-Email: forschung@snb.ch
File-URL: https://www.snb.ch/en/publications/research/working-papers/2015/working_paper_2015_03
File-Format: text/html
Number: 2015-03
Classification-JEL: C32, C51, F31
Keywords: Long swings, Imperfect Knowledge, I(2) analysis, Self-reinforcing feed-back
Handle: RePEc:snb:snbwpa:2015-03