<abstract xmlns="http://www.w3.org/1999/xhtml"><p>We theoretically examine under which assumptions the impossible trinity holds. We also focus on the most recent Swiss experience and ask whether the SNB gained monetary independence by switching from a fixed to a floating exchange rate system in January 2015. The theoretical examination shows that the impossible trinity holds under the following assumptions: Equality of domestic and foreign real interest rates, the quantity theory of money holds, and that the relative PPP is fulfilled. The empirical analysis reveals that relative PPP does not hold for the Swiss case and it was necessary for the SNB to adopt its monetary policy in accordance with the ECB’s expansionary monetary policy. We show that for a small open economy, such as Switzerland, whether the central bank implements a fixed or a floating exchange rate system does not play a role in its monetary policy independence.</p></abstract>

We theoretically examine under which assumptions the impossible trinity holds. We also focus on the most recent Swiss experience and ask whether the SNB gained monetary independence by switching from a fixed to a floating exchange rate system in January 2015. The theoretical examination shows that the impossible trinity holds under the following assumptions: Equality of domestic and foreign real interest rates, the quantity theory of money holds, and that the relative PPP is fulfilled. The empirical analysis reveals that relative PPP does not hold for the Swiss case and it was necessary for the SNB to adopt its monetary policy in accordance with the ECB’s expansionary monetary policy. We show that for a small open economy, such as Switzerland, whether the central bank implements a fixed or a floating exchange rate system does not play a role in its monetary policy independence.

The Swiss National Bank’s fear of float

Faculty of Business and Economics, Chair of Macroeconomics,

Journal of Central Banking Theory and Practice

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License.

{"article-title":"The Swiss National Bank\u2019s fear of float"}

We theoretically examine under which assumptions the impossible trinity holds. We also focus on the most recent Swiss experience and ask whether the SNB gained...

The Swiss National Bank’s fear of float

Published Online: May 22, 2019

Page range: 51 - 64

Received: Apr 12, 2018

Accepted: Jun 30, 2018

DOI: https://doi.org/10.2478/jcbtp-2019-0013

Keywords
Foreign exchange market, Swiss crisis, impossible trinity, monetary policy independence

© 2019 Kristin Berthold et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License.

The Swiss National Bank’s fear of float

Published Online: May 22, 2019

Page range: 51 - 64

Received: Apr 12, 2018

Accepted: Jun 30, 2018

DOI: https://doi.org/10.2478/jcbtp-2019-0013

KeywordsForeign exchange market, Swiss crisis, impossible trinity, monetary policy independence

© 2019 Kristin Berthold et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License.

Keywords
Foreign exchange market, Swiss crisis, impossible trinity, monetary policy independence