Why are Switzerland's Foreign Assets so Low? The Growing Financial Exposure of a Small Open Economy

60 Pages Posted: 1 May 2007

See all articles by Nicolas Stoffels

Nicolas Stoffels

Swiss National Bank

Cédric Tille

Graduate Institute of International and Development Studies (HEI)

Date Written: April 2007

Abstract

Switzerland's international investment position shows a puzzling feature since 1999: Large and persistent current account surpluses have failed to boost the value of Swiss foreign assets. In this paper, we link this pattern to the substantial increase in the leveraging of Switzerland's international assets and liabilities over the last twenty years, which we document in detail. We estimate the impact of exchange rate and asset prices movements on Swiss net foreign assets, and show that they led to substantial valuations losses since 1999, accounting for between one-quarter and one-half of the gap between the net foreign assets and cumulated current account flows. We show how these adverse valuation effects have erased Switzerland's advantage in terms of the yield on its net foreign asset position.

Keywords: international leverage, valuation effect, external position

JEL Classification: F32, F33, F36

Suggested Citation

Stoffels, Nicolas and Tille, Cedric, Why are Switzerland's Foreign Assets so Low? The Growing Financial Exposure of a Small Open Economy (April 2007). FRB of New York Staff Report No. 283. Available at SSRN: https://ssrn.com/abstract=983784 or http://dx.doi.org/10.2139/ssrn.983784

Nicolas Stoffels

Swiss National Bank ( email )

Economic Affairs
Boersenstrasse 15
Zurich, 8022
Switzerland
+41 44 631 3424 (Phone)
+41 44 631 3901 (Fax)

Cedric Tille (Contact Author)

Graduate Institute of International and Development Studies (HEI) ( email )

PO Box 136
Geneva, CH-1211
Switzerland

HOME PAGE: http://sites.google.com/site/cedrictilleheid/home

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