Title: On the the Swiss exchange rate shock
Authors: Gregor von Schweinitz - Halle Institute for Economic Research (Germany) [presenting]
Manuel Buchholz - Halle Institute for Economic Research (Germany)
Lena Tonzer - Halle Institute for Economic Research (Germany)
Abstract: Following a depreciation of the Euro due to turmoil in the Euro area and the announcement of further monetary expansion of the European Central Bank, the Swiss National Bank (SNB) suddenly abolished the exchange rate peg with the Euro in January 2015. The unexpected step led to immediate disruptions in stock markets and uncertainty about the consequences for the future growth pattern in Switzerland. We first ask whether the Swiss exchange rate shock caused significant stock market reactions. Second, we test whether this effect has been heterogeneous across sectors like banks or non-financial firms. We exploit that the removal of the one-sided cap of the exchange rate occurred unexpectedly. Making use of this surprise component, we have an exogenous shock that allows identifying effects in a synthetic matching framework. Third, results from a sign-restricted smooth transition VAR show that the exchange rate did not have any medium- to long-run effects despite the massive short-run market disturbances.