Verbal Interventions and Exchange Rate Policies: The Case of Swiss Franc Cap

33 Pages Posted: 5 Jul 2016 Last revised: 23 Mar 2019

See all articles by Nikola Mirkov

Nikola Mirkov

Swiss National Bank

Igor Pozdeev

New York University Stern School of Business; University of Saint Gallen, School of Finance

Paul Söderlind

University of St. Gallen; Centre for Economic Policy Research (CEPR); University of St. Gallen - School of Finance

Date Written: December 6, 2018

Abstract

We ask whether verbal interventions by the Swiss National Bank (SNB) affected market beliefs in the desired direction during the period from 2011 to 2015, when the SNB imposed a cap on the Swiss franc at 1.20 against the euro. A verbal intervention was a speech by a member of the SNB Governing Board containing the wording “utmost determination” and/or “unlimited quantities”. We show that these verbal interventions lowered option-based measures of uncertainty regarding the future value of euro/Swiss franc exchange rate and steered market beliefs toward franc depreciation, therefore reinforcing the credibility of the Swiss franc cap.

Keywords: Swiss franc, options, FX liquidity, verbal interventions

JEL Classification: E58, E44, G12

Suggested Citation

Mirkov, Nikola and Pozdeev, Igor and Söderlind, Paul, Verbal Interventions and Exchange Rate Policies: The Case of Swiss Franc Cap (December 6, 2018). University of St. Gallen, School of Finance Research Paper No. 2016/14. Available at SSRN: https://ssrn.com/abstract=2804570 or http://dx.doi.org/10.2139/ssrn.2804570

Nikola Mirkov

Swiss National Bank ( email )

Borsenstrasse 15
Zurich, 8022
Switzerland

Igor Pozdeev (Contact Author)

New York University Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

University of Saint Gallen, School of Finance ( email )

Rosenbergstrasse 52
St.Gallen, CH-9000
Switzerland

Paul Söderlind

University of St. Gallen ( email )

Rosenbergstrasse 52
St. Gallen, 9000
Switzerland
+41 71 224 7064 (Phone)
+41 71 224 7088 (Fax)

HOME PAGE: http://https://sites.google.com/site/paulsoderlindecon/home

Centre for Economic Policy Research (CEPR)

London
United Kingdom

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

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