Abstract

https://ssrn.com/abstract=2706494
 


 



Foreign Currency Denominated Assets and International Shock Absorption in Switzerland and Japan


Gunther Schnabl


University of Leipzig - Institute for Economic Policy

November 2015

CESifo Working Paper Series No. 5624

Abstract:     
Currencies of countries with persistent current account surpluses and high foreign currency denominated assets such as the Swiss franc and Japanese yen are under a persistent appreciation pressure, what restricts the degree of freedom in the choice of exchange rate regime. Official announcements (implicit communication) of appreciations can trigger runs into the domestic currency, which make appreciation expectations self-fulfilling. The resulting negative growth effect is likely to trigger interest rate cuts, which can add to unsustainable financial exuberance. It is argued that horizontal exchange rate pegs are the most effective tool to stabilize economies with large net foreign asset positions.

Number of Pages in PDF File: 32

Keywords: international investment position, appreciation-induced risk, exchange rate risk, foreign exchange intervention, monetary policy independence, Switzerland, Japan

JEL Classification: F150, F310, F330


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Date posted: December 22, 2015  

Suggested Citation

Schnabl, Gunther, Foreign Currency Denominated Assets and International Shock Absorption in Switzerland and Japan (November 2015). CESifo Working Paper Series No. 5624. Available at SSRN: https://ssrn.com/abstract=2706494

Contact Information

Gunther Schnabl (Contact Author)
University of Leipzig - Institute for Economic Policy ( email )
Institute for Economic Policy
Grimmaische Straße 12
Leipzig, 04109
Germany
HOME PAGE: http://www.wifa.uni-leipzig.de/iwp/
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