Current Account Surpluses and the Interest Rate Island in Switzerland

Paolo Mauro

No 1995/024, IMF Working Papers from International Monetary Fund

Abstract: This paper describes some long-run aspects of the Swiss balance of payments, highlighting two macroeconomic phenomena that make Switzerland stand out among other countries: first, it has had a persistent current account surplus and the largest ratio of net foreign assets to GDP in the world; second, its real interest rates have been significantly lower than those of most other industrialized countries, earning it the label “interest rate island”. These two distinctive features may be related, and ultimately both may result from an excess of national savings over investment for many years. The real interest differential may largely be attributed to a foreign exchange rate risk premium, which compensates Swiss residents for holding net assets in foreign currency and foreign residents for bearing net liabilities in Swiss francs.

Keywords: WP; exchange rate risk; rate of return; return on assets; trade balance; foreign exchange; real interest rate differential; R&D spending; expected return; trade pattern; trading partner; exchange rate risk risk premium; real interest rates in Switzerland; balance of payments; deutsche mark; surplus in Switzerland; Switzerland real interest rates; Foreign assets; Real interest rates; Current account surpluses; Interest rate parity; Purchasing power parity; Global (search for similar items in EconPapers)
Pages: 46
Date: 1995-02-01
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Citations: View citations in EconPapers (6)

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