Foreign exchange interventions under a minimum exchange rate regime and the Swiss franc

Abstract

AbstractIn this paper, a structural model is proposed that allows monetary authorities to determine the size of foreign exchange market interventions that are expected to be necessary to implement a minimum exchange rate regime. An empirical application of the proposed model to the minimum exchange rate regime that the Swiss National Bank (SNB) implemented vis‐à‐vis the euro from September 2011 to January 2015 reveals that it is well suited to explain the actual size of these interventions and that, in January 2015, the SNB’s euro purchases might have been large without the abandonment of the minimum exchange rate regime, which is consistent with the official statements of the SNB in the aftermath of that episode.