Template-type: ReDIF-Paper 1.0
Author-Name: Dr. Christian Grisse
Author-Name-First: Christian
Author-Name-Last: Grisse
Author-Person: pgr250
Title: The effect of monetary policy on the Swiss franc: an SVAR approach
Abstract: This paper revisits the effects of monetary policy on the exchange rate, focusing on the Swiss franc. I estimate a structural VAR using Bayesian methods introduced by Baumeister and Hamilton (2015) and identify monetary policy shocks by exploiting the interest rate and stock price comovement they induce. Priors are based on the previous empirical literature, leaving the exchange rate response to monetary policy agnostically open. The results show that increases in Swiss short-term interest rates are associated with a nominal Swiss franc appreciation against the euro and the US dollar within the same week, with the Swiss franc remaining permanently stronger than prior to the interest rate shock.
Length: 33 pages
Creation-Date: 2020
Contact-Email: forschung@snb.ch
File-URL: https://www.snb.ch/en/publications/research/working-papers/2020/working_paper_2020_02
File-Format: text/html
Number: 2020-02
Classification-JEL: C32, E43, E58, F31
Keywords: Monetary policy shocks, exchange rates, stock-bond comovement, delayed overshooting, structural vector autoregression, informative priors, sign restrictions
Handle: RePEc:snb:snbwpa:2020-02