IDEAS home Printed from https://ideas.repec.org/a/kap/fmktpm/v19y2005i2p201-212.html
   My bibliography  Save this article

Forecasting Monetary Policy in Switzerland: Some Empirical Assistance

Author

Listed:
  • Thorsten Hock
  • Patrick Zimmermann

Abstract

This paper provides empirical assistance in forecasting monetary policy in Switzerland. After the introduction, we provide a descriptive analysis of the four cycles of rising interest rates from 1979 to 2003. It is apparent that the individual cycles diverge to greater or lesser degrees from the average rising interest rate cycle. The third section evaluates the quality of various market forecasts. Regardless of the method of measurement, they show statistically significant and systematic forecast errors. Even simple trend forecasts for money market rates seldom beat the toss of a coin. If we divide the observation periods into regimes of rising and of falling interest rates, then forecasts based on futures contracts on the 3-month LIBOR are superior to other market variables such as forwards or consensus estimates in times when rates are rising. In the fourth section, we assess an empirical response function for the Swiss National Bank’s (SNB) monetary policy. Due to the long, variable time lags with which monetary policy affects the real economy, the central banks must adopt a forward-looking approach and base decisions on expectations. Hence, by employing consensus forecasts, we use expectations for inflation and growth as explanatory variables. The analysis shows that the SNB has a stable interest rate policy, with inflation forecasts weighted four times more heavily than growth expectations. Assuming the SNB will behave similarly in the future as it has in the past, this rule of thumb allows us to assign historically consistent money market rates to a specific macro-economic climate. Copyright Swiss Society for Financial Market Research 2005

Suggested Citation

  • Thorsten Hock & Patrick Zimmermann, 2005. "Forecasting Monetary Policy in Switzerland: Some Empirical Assistance," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 19(2), pages 201-212, August.
  • Handle: RePEc:kap:fmktpm:v:19:y:2005:i:2:p:201-212
    DOI: 10.1007/s11408-005-3386-0
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s11408-005-3386-0
    Download Restriction: Access to full text is restricted to subscribers.

    File URL: https://libkey.io/10.1007/s11408-005-3386-0?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Francis X. Diebold & Jose A. Lopez, 1995. "Forecast evaluation and combination," Research Paper 9525, Federal Reserve Bank of New York.
    2. James G. MacKinnon, 1990. "Critical Values for Cointegration Tests," Working Paper 1227, Economics Department, Queen's University.
    3. Engle, Robert F. & Yoo, Byung Sam, 1987. "Forecasting and testing in co-integrated systems," Journal of Econometrics, Elsevier, vol. 35(1), pages 143-159, May.
    4. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Oleg KITOV & Ivan KITOV, 2012. "Inflation And Unemployment In Switzerland: From 1970 To 2050," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 7(2(20)/ Su), pages 141-156.
    2. Sébastien Kraenzlin, 2007. "The characteristics and development of the Swiss franc repurchase agreement market," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 21(2), pages 241-261, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Norah Al-Ballaa, 2005. "Test for cointegration based on two-stage least squares," Journal of Applied Statistics, Taylor & Francis Journals, vol. 32(7), pages 707-713.
    2. Wagatha, Matthias, 2007. "Integration, Kointegration und die Langzeitprognose von Kreditausfallzyklen [Integration, Cointegration and Long-Horizont Forecasting of Credit-Default-Cycles]," MPRA Paper 8602, University Library of Munich, Germany.
    3. Dennis L. Hoffman & Robert H. Rasche, 1997. "STLS/US-VECM6.1: a vector error-correction forecasting model of the U. S. economy," Working Papers 1997-008, Federal Reserve Bank of St. Louis.
    4. Ball, Laurence & Croushore, Dean, 2003. "Expectations and the Effects of Monetary Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(4), pages 473-484, August.
    5. Janine Aron, 2000. "Monetary Transmission and Policy Rules in South Africa," Econometric Society World Congress 2000 Contributed Papers 1627, Econometric Society.
    6. Guo, Zi-Yi, 2017. "Comparison of Error Correction Models and First-Difference Models in CCAR Deposits Modeling," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 17(4).
    7. Adriana Cassoni & Steven G. Allen & Gaston J. Labadie, 2004. "Unions and Employment in Uruguay," NBER Chapters, in: Law and Employment: Lessons from Latin America and the Caribbean, pages 435-496, National Bureau of Economic Research, Inc.
    8. Ram Bhar, 1994. "Yield Curve as a Cointegrated System: Evidence from Australian Treasury Securities," Working Paper Series 35, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
    9. Ryuzo Miyao, 2002. "Liquidity Trap and the Stability of Money Demand: Is Japan Really Trapped at the Zero Bound?," Discussion Paper Series 127, Research Institute for Economics & Business Administration, Kobe University.
    10. Jose Sanchez-fung, 2005. "Estimating a monetary policy reaction function for the dominican republic," International Economic Journal, Taylor & Francis Journals, vol. 19(4), pages 563-577.
    11. Carol H. Shiue & Wolfgang Keller, 2007. "Markets in China and Europe on the Eve of the Industrial Revolution," American Economic Review, American Economic Association, vol. 97(4), pages 1189-1216, September.
    12. Villar Gómez Leonardo & David M. Salamanca Rojas & Andrés Murcia Pabón, 2005. "Crédito, represión financiera y flujos de capitales en Colombia: 1974-2003," Revista Desarrollo y Sociedad, Universidad de los Andes,Facultad de Economía, CEDE, May.
    13. Christoffersen, Peter F & Diebold, Francis X, 1998. "Cointegration and Long-Horizon Forecasting," Journal of Business & Economic Statistics, American Statistical Association, vol. 16(4), pages 450-458, October.
    14. Sarno, Lucio & Thornton, Daniel L., 2003. "The dynamic relationship between the federal funds rate and the Treasury bill rate: An empirical investigation," Journal of Banking & Finance, Elsevier, vol. 27(6), pages 1079-1110, June.
    15. Glasure, Yong U. & Lee, Aie-Rie, 1998. "Cointegration, error-correction, and the relationship between GDP and energy: The case of South Korea and Singapore," Resource and Energy Economics, Elsevier, vol. 20(1), pages 17-25, March.
    16. Brian Francis & Sunday Iyare, 2006. "Education and development in the caribbean: a cointegration and causality approach," Economics Bulletin, AccessEcon, vol. 15(2), pages 1-13.
    17. Richard H. Clarida & Lucio Sarno & Mark P. Taylor & Giorgio Valente, 2006. "The Role of Asymmetries and Regime Shifts in the Term Structure of Interest Rates," The Journal of Business, University of Chicago Press, vol. 79(3), pages 1193-1224, May.
    18. Lahura, Erick, 2010. "Monetary aggregates and monetary policy: an empirical assessment for Peru," Working Papers 2010-019, Banco Central de Reserva del Perú.
    19. Kuo, Shew-Huei, 2000. "An examination of the evolving relationship between interest rates of different maturities in Japan, and test of the expectations hypothesis of the term structure to ascertain the feasibility of using," ISU General Staff Papers 2000010108000014910, Iowa State University, Department of Economics.
    20. Jefferson, Philip N., 2000. "'Home' base and monetary base rules: elementary evidence from the 1980s and 1990s," Journal of Economics and Business, Elsevier, vol. 52(1-2), pages 161-180.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:fmktpm:v:19:y:2005:i:2:p:201-212. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.