Monday, June 11, 2012

Woj — Swiss Struggle To Maintain Currency Floor

NGDP targeting crowd wrong about SNB and expectations?

Read it at Bubbles and Busts
Swiss Struggle To Maintain Currency Floor
by Woj
(h/t Woj in the comments)


JKH said...

Hang down your head, Chuck Norris.

PeterP said...

Market Monetarists will ignore this like they ignore all evidence. They say the same every time, no matter how many times they were shown they don't get the monetary system.

Woj said...

Thanks for posting the link...and all your hard work making this site great!

Dan Kervick said...

Apart from whether or not Switzerland has succeeded, doesn't anyone understand the difference between a currency exchange rate floor and total nominal spending in the economy?

Oliver said...

From what I know, most fixed currency regimes have ultimately fallen apart with generally negative consequences.

This part I don't understand. What in the world could make the CHF deal come a part? It isn't a peg, its a floor. Is there reason to believe that there could be a speculative attack on the CHF sending it down? It's only a fall in the CHF that the SNB can't do anything about beyond its fx reserves. But never a rise, no?

Woj said...

@Oliver - Sorry for not making that part clearer. Operationally the SNB could protect its currency floor indefinitely.

My comment about the ability of the SNB to maintain its stance is more about the political/independence aspect. IMO, there may be some level of fx reserves (essentially euros) that the SNB acquires at which point Swiss politicians become nervous about the implications and pressure the SNB to remove its floor. Ultimately this is just speculation that may prove equally untrue or may represent a real (though not operational) constraint on CB policy.

Oliver said...

That's already happening. And the 'we're running out of money and straight into zimbabwe' story line is simple enough to be of political use to the fear mongers. which means the same people who forced Hildebrand out of office are now teaming up against his policy legacy and the SNB as such. Plus some lobbyists who would profit and the usual crazies.