Swiss monetary policy

More about the book

This thesis examines Swiss monetary policy through various lenses. The first part focuses on generating a liquidity effect in a DSGE model. Typically, DSGE models show that expansionary monetary policy leads to increased interest rates due to anticipated inflation, negating the liquidity effect that suggests a negative relationship between money growth and nominal interest rates. To address this, a new-Keynesian model by Altig, Christiano, Eichenbaum, and Linde (2005) is applied to Switzerland, incorporating sticky wages and prices along with non-standard features like habit formation in consumption, investment adjustment costs, and firms' capital utilization rates. The model's impulse responses are compared with those from a structural VAR to capture empirical evidence. The second part estimates a Taylor rule with Markov switching regimes for Switzerland, emphasizing the exchange rate's role in this open economy. The Swiss National Bank's (SNB) response varies when the exchange rate deviates from its trend. Inflation, output, and exchange rate gaps serve as explanatory variables, with state-dependent coefficients to identify differing monetary policy regimes. The estimation is conducted using both frequentist and Bayesian frameworks. Finally, the thesis develops a Gibbs sampler for estimating three-state Markov switching models with non-constant transition probabilities. Transitioning from two to three states involves a mul