Title: Shocking interest rate floors
Authors: Daniel Kaufmann - University of Neuchatel (Switzerland) [presenting]
Abstract: The dynamic causal effects of interest rate floor shocks are identified exploiting regular auctions of Swiss central bank debt securities (SNB Bills). We first establish theoretically that central bank debt and interest-bearing reserves are equivalent when reserves are ample. Based on these insights, the empirical analysis identifies an interest rate floor shock in a dynamic event study of SNB Bill auctions. A restrictive interest rate floor shock causes an increase in the money market rate, a persistent appreciation of the Swiss franc, a decline in long-term interest rates, and a decline in stock prices. We then perform policy experiments under various identifying assumptions in which the central bank raises the interest rate floor from 0\% to 0.25\%. Such a policy change causes a 3-6\% appreciation of the Swiss franc and a 5-20\% decline in stock prices.