Monetary policy through exchange rate pegs: The removal of the Swiss franc‐Euro floor and stock price reactions

Gregor von Schweinitz, Lena Tonzer and Manuel Buchholz

International Review of Finance, 2021, vol. 21, issue 4, 1382-1406

Abstract: The Swiss National Bank abolished the exchange rate floor versus the Euro in January 2015. Using a synthetic matching framework, we analyze the impact of this unexpected (and therefore exogenous) policy change on the stock market. The results reveal a significant level shift (decline) in asset prices following the discontinuation of the minimum exchange rate. As a novel finding in the literature, we document that the exchange‐rate elasticity of Swiss asset prices is around −0.75. Differentiating between sectors of the Swiss economy, we find that the industrial, financial and consumer goods sectors are most strongly affected by the abolition of the minimum exchange rate.

Date: 2021
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