A Quasi-Bounded Model for Swiss Franc's One-Sided Target Zone During 2011-2015

C. H. Hui, C. F. Lo and Tom Fong ()
Additional contact information
C. H. Hui: Hong Kong Monetary Authority
C. F. Lo: The Chinese University of Hong Kong

No 152015, Working Papers from Hong Kong Institute for Monetary Research

Abstract: On 6 September 2011, a ceiling on the value of the Swiss franc was imposed, at CHF 1.2 per euro. With the continuous weakness of the euro area economy, this exchange rate limit was abandoned on 15 January 2015. This paper proposes a quasi-bounded process for the Swiss franc exchange rate dynamics under a one-sided target zone during this period, in which the exchange rate can breach the strong-side limit under a restricted condition of the relationship between the parameters of the drift term and stochastic part of the process. The empirical results using market data during 6 September 2011 ¡V 14 January 2015 with a rolling one-year window suggest that this model can describe the dynamics of the Swiss franc under a one-sided target zone, where the drifting force is an increasing function of foreign reserves. While the exchange rate was bounded below the strong-side limit during most of the time, as indicated by its dynamics, the condition for breaching the limit was met in November 2014 using only information until that point, i.e., about two months before abandoning the limit.

Keywords: Exchange Rate Target Zone; Swiss Franc; Quasi-Bounded Process (search for similar items in EconPapers)
JEL-codes: F31 G13 (search for similar items in EconPapers)
Pages: 14 pages
Date: 2015-07
New Economics Papers: this item is included in nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.hkimr.org/uploads/publication/421/wp-no-15_2015-final-.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.hkimr.org/uploads/publication/421/wp-no-15_2015-final-.pdf [301 Moved Permanently]--> http://www.aof.org.hk/research/HKIMR/uploads/publication/421/wp-no-15_2015-final-.pdf [301 Moved Permanently]--> https://www.aof.org.hk/research/HKIMR/uploads/publication/421/wp-no-15_2015-final-.pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hkm:wpaper:152015

Access Statistics for this paper

More papers in Working Papers from Hong Kong Institute for Monetary Research Contact information at EDIRC.
Bibliographic data for series maintained by HKIMR ().