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The effect of monetary policy on the Swiss franc: an SVAR approach

Christian Grisse ()

No 2020-02, Working Papers from Swiss National Bank

Abstract: This paper revisits the effects of monetary policy on the exchange rate, focusing on the Swiss franc. I estimate a structural VAR using Bayesian methods introduced by Baumeister and Hamilton (2015) and identify monetary policy shocks by exploiting the interest rate and stock price comovement they induce. Priors are based on the previous empirical literature, leaving the exchange rate response to monetary policy agnostically open. The results show that increases in Swiss short-term interest rates are associated with a nominal Swiss franc appreciation against the euro and the US dollar within the same week, with the Swiss franc remaining permanently stronger than prior to the interest rate shock.

Keywords: Monetary policy shocks; exchange rates; stock-bond comovement; delayed overshooting; structural vector autoregression; informative priors; sign restrictions (search for similar items in EconPapers)
JEL-codes: C32 E43 E58 F31 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2020
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:snb:snbwpa:2020-02

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