Real exchange rate persistence: The case of the Swiss franc-US dollar rate

Katarina Juselius and Katrin Assenmacher

No 2015-03, Working Papers from Swiss National Bank

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.

Keywords: Long swings; Imperfect Knowledge; I(2) analysis; Self-reinforcing feed-back (search for similar items in EconPapers)
JEL-codes: C32 C51 F31 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2015
New Economics Papers: this item is included in nep-mon and nep-opm
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Real exchange rate persistence: the case of the Swiss franc-US dollar rate (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:snb:snbwpa:2015-03

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