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Currency wars in the advanced world: Resisting appreciation at a time of change in central banking monetary consensus

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  • Manuela Moschella

Abstract

The purpose of this paper is to consider certain consequences of large post-crisis capital flows in advanced economies. Specifically, I offer an examination of the Swiss response to large capital inflows during the early stages of the global financial crisis. Why did the Swiss National Bank (SNB) intervene in the foreign exchange market and introduce an exchange rate floor? Why did the SNB gamble with its highly valued anti-inflationary reputation in attempting to stem the appreciation of the Swiss franc? To answer these questions, this paper suggests a broader and more complete explanation than one that focuses solely on the configuration of domestic interests. Specifically, the paper argues that a thorough explanation of the SNB's response requires accounting for the changing monetary paradigm of the central banking community. This emerging monetary paradigm influenced the SNB's policy decisions by making the SNB particularly sensitive to financial stability risks and by providing it with the policy space to experiment with (macroprudential) tools to manage these risks.

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  • Manuela Moschella, 2015. "Currency wars in the advanced world: Resisting appreciation at a time of change in central banking monetary consensus," Review of International Political Economy, Taylor & Francis Journals, vol. 22(1), pages 134-161, February.
    • Handle: RePEc:taf:rripxx:v:22:y:2015:i:1:p:134-161
    DOI: 10.1080/09692290.2013.869242
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    References listed on IDEAS

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    1. Steininger, Lea & Hesse, Casimir, 2024. "Buying into new ideas: The ECB’s evolving justification of unlimited liquidity," Department of Economics Working Paper Series 357, WU Vienna University of Economics and Business.
    2. Tim Marple, 2021. "The social management of complex uncertainty: Central Bank similarity and crisis liquidity swaps at the Federal Reserve," The Review of International Organizations, Springer, vol. 16(2), pages 377-401, April.
    3. André Moreira Cunha & Daniela Magalhães Prates & Pedro Perfeito da Silva, 2020. "External Financial Liberalization and Macroeconomic Performance in Emerging Countries: An Empirical Evaluation of the Brazilian Case," Development and Change, International Institute of Social Studies, vol. 51(5), pages 1225-1245, September.
    4. Lea Steininger & Casimir Hesse, 2024. "Buying into new ideas: The ECB’s evolving justification of unlimited liquidity," Department of Economics Working Papers wuwp357, Vienna University of Economics and Business, Department of Economics.

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