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Possible Effects of European Monetary Union on Switzerland A Case Study of Policy Dilemmas Caused by Low Inflation and the Nominal Interest Rate Floor

This paper examines the possible effects on Switzerland of asset preference shifts in favor of Swiss-franc-denominated assets that could result from EMU. Alternative policy responses to temporary and persistent asset preference shifts and the consequent pressures for exchange rate appreciation are e...

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Bibliographic Details
Main Author: Laxton, Douglas
Other Authors: Prasad, Eswar
Format: eBook
Language:English
Published: Washington, D.C. International Monetary Fund 1997
Series:IMF Working Papers
Subjects:
Interest Rates
Inflation
Finance
Currency; Foreign Exchange
Financial Services
Deflation
Short Term Interest Rates
Open Economy Macroeconomics
Foreign Exchange
Price Level
Banks And Banking
Prices
Macroeconomics
Real Exchange Rates
Interest Rates: Determination, Term Structure, And Effects
Interest Rate Parity
Exchange Rates
Monetary Policy
Switzerland
Online Access:
Collection: International Monetary Fund - Collection details see MPG.ReNa
Description
Summary:This paper examines the possible effects on Switzerland of asset preference shifts in favor of Swiss-franc-denominated assets that could result from EMU. Alternative policy responses to temporary and persistent asset preference shifts and the consequent pressures for exchange rate appreciation are examined. Simulations of a stylized macroeconomic model of the Swiss economy indicate that monetary policy is likely to be the most effective tool for stabilizing output in the short run, but at the cost of a temporary increase in inflationary pressures. The simulations highlight the dilemmas faced by policymakers in an environment with low inflation and nominal interest rates
Physical Description:33 pages
ISBN:9781451844009

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