Money, inflation and the financial crisis: the case of Switzerland

Peter Kugler and Dr. Samuel Reynard

Issue
2020-16

Pages
37

JEL classification
E52, E58, E41, E30

Keywords
Monetary policy, monetary aggregates, inflation, equilibrium velocity, foreign exchange interventions

Year
2020

Unconventional monetary policies have sometimes raised inflation-related fears that have not materialized. Switzerland presents an interesting case, as the central bank reacted to an appreciating currency by injecting Swiss francs through foreign exchange interventions, and bank lending increased considerably throughout the financial crisis. The low inflation that occurred after the crisis can be reconciled with the substantial money growth during the crisis by accounting for the effects of the lower equilibrium velocity and portfolio shifts associated with the Swiss National Bank's foreign exchange interventions.