Working Paper: CEPR ID: DP6563
Authors: Lucas Burkhart; Andreas M. Fischer
Abstract: This paper examines a special episode in communication practices of the Swiss National Bank (SNB) when short-term interest rates reached the zero bound. A particular feature of SNB communication policy at the time was to talk openly about alternative policy instruments despite the fact that they were never implemented. Non-sterilized FX interventions were frequently mentioned as a potential instrument. We ask how did financial markets respond to the SNB's repeated references of non-sterilized interventions? The empirical results with high frequency data provide strong evidence that SNB intervention references depreciated the domestic currency for several hours. The case study supports the view that communication is an effective tool for monetary policy.
Keywords: central bank communication; exchange rate; zero bound
JEL Codes: E58; F31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| SNB intervention references (F31) | depreciation of the Swiss franc against the euro (F31) |
| strong and supportive SNB intervention references (F33) | depreciation of the Swiss franc against the euro (F31) |
| SNB communication strategy (E63) | market expectations and currency valuation (F31) |
| SNB intervention references (F31) | market behavior (D40) |
| SNB intervention references (repeated) (F31) | effectiveness of communication strategy (L96) |
| SNB communication strategy in low interest rate environments (E43) | depreciation of the Swiss franc against the euro (F31) |
| SNB communication strategy in zero interest rate environments (E43) | depreciation of the Swiss franc against the euro (F31) |