Swiss Monetary Research Articles

Central Banking through the Centuries

Book Review| October 01 2019 Central Banking through the Centuries Central Banks at a Crossroads: What Can We Learn from History? Edited by Bordo, Michael D.; Eitrheim, Oyvind; Flandreau, Marc; Qvigstad, Jan F.. Cambridge: Cambridge University Press, 2016. xx; 698 pp. $171.00.Sveriges Riksbank and the History of Central Banking. Edited by Edvinsson, Rodney; Jacobson, Tor; Waldenström, Daniel. Cambridge: Cambridge University Press, 2018. xviii; 507 pp. $110.00.The Quest for Stable Money, Central Banking in Austria, 1816–2016. By Jobst, Clement; Kernbauer, Hans. Frankfort-on-Main: Campus Verlag, 2016. 317 pp. $39.99.A Monetary History of Norway, 1816–2016. Edited by Eitrheim, Oyvind; Klovland, Jan Tore; Øksendal, Lars Fredrik. Cambridge: Cambridge University Press, 2016. xxvi; 628 pp. $132.00.Swiss Monetary History since the Early 19th Century. By Baltensperger, Ernest; Kugler, Peter. Cambridge: Cambridge University Press, 2017. xx; 244 pp. $88.99. Ivo Maes Ivo Maes Search for other works by this author on: This Site Google History of Political Economy (2019) 51 (5): 957–966. https://doi.org/10.1215/00182702-7803739 Cite Icon Cite Share Icon Share Facebook Twitter Email Permissions Search Site Citation Ivo Maes; Central Banking through the Centuries. History of Political Economy 1 October 2019; 51 (5): 957–966. doi: https://doi.org/10.1215/00182702-7803739 Download citation file: Zotero Reference Manager EasyBib Bookends Mendeley Papers EndNote RefWorks BibTex toolbar search Search nav search search input Search input auto suggest search filter Books & JournalsAll JournalsHistory of Political Economy Search Advanced Search The text of this article is only available as a PDF. Copyright © 2019 Duke University Press2019 Article PDF first page preview Close Modal You do not currently have access to this content.

The sovereign money initiative in Switzerland: an economic assessment

The sovereign money initiative will be submitted to the Swiss people in 2018. This paper reviews the arguments behind the initiative and discusses its potential impact. I argue that several arguments are inconsistent with empirical evidence or with economic logic. In particular, controlling sight deposits neither stabilizes credit nor avoids financial crises. Also, assuming that deposits at the central bank are not a liability has implications for fiscal and monetary policy, and Benes and Kumhof (The Chicago Plan Revisited, 2012) do not provide support for the reform as they do not analyze the proposed Swiss monetary reform and their closed-economy model does not fit the Swiss economy. Then, using a simple model with monopolistically competitive banks, the paper assesses quantitatively the impact of removing sight deposits from commercial banks’ balance sheets. Even though there is a gain for the state, the overall impact is negative, especially because depositors would face a negative return. Moreover, the initiative goes much beyond what would be the equivalent of full reserve requirement and would impose severe constraints on monetary policy; it would weaken financial stability rather than reinforce it; and it would threaten the trust in the Swiss monetary system. Finally, there is high uncertainty both on the details of the reform and on its impact.

The Sovereign Money Initiative in Switzerland: An Assessment

The Sovereign Money Initiative will be submitted to the Swiss people in 2018. This paper reviews the arguments behind the initiative and discusses its potential impact. I argue that several arguments are inconsistent with empirical evidence or with economic logic. In particular, controlling sight deposits neither stabilizes credit nor avoids financial crises. Also, assuming that deposits at the central bank are not a liability has implications for fiscal and monetary policy; and Benes and Kumhof (2012) do not provide support for the reform as they do not analyze the proposed Swiss monetary reform and their closed-economy model does not fit the Swiss economy. Then, using a simple model with monpolistically competitive banks, the paper assesses quantitatively the impact of removing sight deposits from commercial banks balance sheets. Even though there is a gain for the state, the overall impact is negative, especially because depositors would face a negative return. Moreover, the initiative goes much beyond what would be the equivalent of full reserve requirement and would impose severe constraints on monetary policy; it would weaken financial stability rather then reinforce it; and it would threaten the trust in the Swiss monetary system. Finally, there is high uncertainty both on the details of the reform and on its impact.

Nominal Stability and Swiss Monetary Regimes Over Two Centuries

This paper documents nominal stability in Switzerland from 1805 to 2013 using a data set on annual price, wage and nominal GDP changes. The trends of these indicators are estimated by an unobserved-components stochastic-volatility model in order to control for short-term fluctuations and measurement error. Based on a narrative analysis of these trends five main findings emerge. (i) Fiat currency regimes in Switzerland provided a relatively stable monetary background even compared to the metal-currency regimes before WW1. (ii) The flexible inflation targeting regime adopted in December 1999 has performed best over the last two centuries measured by today's definition of nominal stability. (iii) Fiat currency regimes without clearly communicated nominal price anchor (Bretton Woods System and monetary targeting) were characterised by an inflation bias. (iv) The metal-currency regimes (competing currencies and bimetallism before World War 1, and to some extent flexible inflation targeting, were associated with a deflation bias. (v) Persistent deflations in terms of the CPI only occurred under metallic regimes before WW2. These episodes were accompanied by falling nominal GDP, falling employment but relatively stable hourly wages.

Inflation and Unemployment in Switzerland: From 1970 to 2050

An empirical model is presented linking inflation and unemployment rate to the change in the level of labour force in Switzerland. The involved variables are found to be cointegrated and we estimate lagged linear deterministic relationships using the method of cumulative curves, a simplified version of the 1D Boundary Elements Method. The model yields very accurate predictions of the inflation rate on a three year horizon. The results are coherent with the models estimated previously for the US, Japan, France and other developed countries and provide additional validation of our quantitative framework based solely on labour force. Finally, given the importance of inflation forecasts for the Swiss monetary policy, we present a prediction extended into 2050 based on official projections of the labour force level.

Swiss monetary policy 2000–2009

Summary In January 2000 the Swiss National Bank adopted a new monetary policy framework incorporating a price stability objective defined as (any rate of) CPI inflation below 2 percent. We contrast this framework with inflation targeting strategies and review the SNB’s policy decisions since its introduction. Empirical results indicate that in setting policy the SNB reacts in much the same way as inflation targeting central banks. The recent sharp reduction in the policy rate is consistent with the estimated reaction function until the second quarter of 2009 when the zero bound became binding, while the deterioration of economic conditions still called for further monetary easing. This may explain the unconventional monetary policy measures adopted since then.

Discussion of “Swiss Monetary Policy 2000–2009” by Hans Genberg and Stefan Gerlach

Discussion of “Swiss Monetary Policy 2000–2009” by Hans Genberg and Stefan Gerlach

Are 'Intrinsic Inflation Persistence' Models Structural in the Sense of Lucas (1976)?

Following Fuhrer and Moore (1995), several authors have proposed alternative mechanisms to 'hardwire' inflation persistence into macroeconomic models, thus making it structural in the sense of Lucas (1976). Drawing on the experience of the European Monetary Union, of inflation-targeting countries, and of the new Swiss monetary policy regime, I show that, in the Phillips curve models proposed by Fuhrer and Moore (1995), Gali and Gertler (1999), Blanchard and Gali (2007), and Sheedy (2007), the parameters encoding the 'intrinsic' component of inflation persistence are not invariant across monetary policy regimes, and under the more recent, stable regimes they are often estimated to be (close to) zero. In line with Cogley and Sbordone (2008), I explore the possibility that the intrinsic component of persistence many researchers have estimated in U.S. post-WWII inflation may result from failure to control for shifts in trend inflation. Evidence from the Euro area, Switzerland, and five inflation-targeting countries is compatible with such hypothesis.

Swiss Monetary Targeting 1974–1996: The Role of Internal Policy Analysis

After the switch to a floating exchange rate in 1973, the Swiss National Bank at first adopted annual monetary targets and in the 1990s shifted to a medium-term targeting strategy. In this paper I review the SNB’s internal policy analysis, an aspect of Swiss monetary targeting that has received little attention in the existing literature. I show that money played a key role in setting monetary policy and in communicating the SNB's decisions to the public. Due to the adoption of monetary targets, the SNB was able to reduce the inflation trend to low levels. However, it was less successful in preserving price stability during business-cycle expansions because the monetary targets did not call for a sufficiently pre-emptive policy stance. At the end of 1999, the SNB abandoned monetary targeting in favour of an approach based on inflation forecasts.

Swiss Monetary Targeting 1974-1996: The Role of Internal Policy Analysis

After the switch to a floating exchange rate in 1973, the Swiss National Bank at first adopted annual monetary targets and in the 1990s shifted to a medium-term targeting strategy. In this paper I review the SNB's internal policy analysis, an aspect of Swiss monetary targeting that has received little attention in the existing literature. I show that money played a key role in setting monetary policy and in communicating the SNB's decisions to the public. Due to the adoption of monetary targets, the SNB was able to reduce the inflation trend to low levels. However, it was less successful in preserving price stability during business-cycle expansions because the monetary targets did not call for a sufficiently preemptive policy stance. At the end of 1999, the SNB abandoned monetary targeting in favour of an approach based on inflation forecasts.

Swiss Monetary Policy in the New World of the Euro: The Swiss Must Bank on Their Sense to Survive

Swiss Monetary Policy in the New World of the Euro: The Swiss Must Bank on Their Sense to Survive

Inflation targeting: lessons from the international experience

List of FiguresPrefacePt. 1Inflation Targeting: The Issues11Introduction32The Rationale for Inflation Targeting103Issues of Design and Implementation26Pt. 2Case Studies and Empirical Evidence394German and Swiss Monetary Targeting: Precursors to Inflation Targeting415New Zealand: Inflation-Targeting Pioneer866Canada: Inflation Targets as Tools of Communication1157United Kingdom: The Central Bank as Counterinflationary Conscience1458Sweden: Searching for a Nominal Anchor1729Three Small Open Economies: Israel, Australia, and Spain20310Inflation Targeting: How Successful Has It Been?252Pt. 3Conclusions28511What Have We Learned?28712Inflation Targeting for the United States and the European Monetary Union309Notes335References355Index367

Inflation targeting in a small open economy: Empirical results for Switzerland

This paper extends McCallum's (1987) nominal targeting rule to a small open economy by allowing for feedback from the exchange rate. Instead of setting parameters in a McCallum-type targeting rule and simulating, the parameters are estimated using a Markov switching model. We argue that a model of discrete parameter changes should be adept at capturing sudden changes in policy regime, such as changes in the degree to which monetary policy admits feedback from the exchange rate. We examine the legitimacy of an inflation targeting rule with occasional exchange-rate feedback to describe Swiss monetary policy over the past twenty years.

Swiss Monetary Policy: Central Bank Independence and Stabilization Goals

Swiss Monetary Policy: Central Bank Independence and Stabilization Goals

The Demand for Swiss Monetary Assets

Since the breakdown of the Bretton Woods system and the change to flexible exchange rates, the Swiss franc has come to play an increasingly important role on international financial markets. The Swiss franc is generally included among the group referred to as "newly-emerging reserve currencies," and the Swiss National Bank (SNB) is often cited as an example for others to follow in prudent monetary policy management. Since 1975 the SNB has chosen to formulate its policy objective in terms of a monetary aggregate and has, as a result, raised the international importance of fluctuations in the Swiss money supply.