| P a p e r s |

Do Safe Haven Effects Really Matter? The Swiss Case
Joint paper with Caroline Chuard, University of Zurich, and Alain Gabler, Swiss National Bank.
JEL Codes E32, E52
Keywords DSGE, UIP, models, Swiss National Bank, Switzerland
Work in progress, file coming soon

DSGE with Financial Frictions
Joint paper with Harris Dellas, University of Bern, and Jean-Marc Natal, Swiss National Bank. We extend the small, open economy, DSGE model of Switzerland (Cuche-Curti, Dellas, and Natal, 2009, see below) to include financial frictions and financial shocks. We use the model to study two questions: first, how the pattern of economic activity in Switzerland is affected by financial shocks, and second, how the presence of financial frictions modifies the response of the economy to non-financial disturbances. We find that both an increase in entrepreneurial net worth (positive asset value shock) and a decrease in the riskiness of bank loans (positive shock to average productivity) increase investment. In the later case, the expansionary effect on investment is immediate, while it is delayed in the former case. We also find that financial frictions do not alter significantly the response of the economy to non-financial shocks, such as productivity or monetary policy. This implies that in periods with little financial turbulence, typical DSGE models may be adequate tools for analyzing business cycles and forecasting.
JEL Codes E32, E44, E52
Keywords DSGE, monetary policy, financial frictions, nominal rigidities, price rigidities
Work in progress, file coming soon, in submission
Presented at the Swiss National Bank, 2009

Price Stability and the Case for Flexible Exchange Rate
Joint paper with Harris Dellas, University of Bern, and Jean-Marc Natal, Swiss National Bank. We revisit Friedman's case for flexible exchange rates in a small open economy with several distortions and rigidities and a variety of domestic and external shocks. We .nd that, for external shocks, the flexible exchange rate regime outperforms the .xed regime independent of the source of domestic nominal rigidities provided that the monetary authorities pursue a policy of strict inflation targeting. For domestic supply shocks, a joint policy of a flexible exchange rate and strict in ation targeting fares well when the main source of nominal rigidities is in the domestic goods markets, but not if rigidities arise in the labor markets.
JEL Codes E32, E52, F33, F42
Keywords Exchange rate regimes, monetary policy, nominal rigidities, price rigidities
File available from the publisher
Published in Open Economies Review, 21(1), 3-16, 2010

DSGE-CH: A Dynamic Stochastic General Equilibrium Model for Switzerland
Joint paper with Harris Dellas, University of Bern, and Jean-Marc Natal, Swiss National Bank. This paper presents a DSGE (dynamic stochastic general equilibrium) model of the Swiss economy used since 2007 in the monetary policy decision process at the Swiss National Bank. In addition to forecasting the likely course of main macro variables under various scenarios for the Swiss economy, the model DSGE-CH serves as a laboratory for studying business cycles and examining the effects of actual and hypothetical monetary policies. The microfounded model DSGE-CH represents Switzerland as a small open economy with optimizing economic agents facing several real and nominal rigidities and exogenous foreign and domestic shocks. The comparison of the model's implications with the real world indicates that DSGE-CH performs well along standard dimensions. It captures the overall stochastic structure of the Swiss economy as represented by the moments of its key macroeconomic variables; furthermore, it has appropriate dynamic properties, as judged by its impulse response functions. Finally, it quite accurately replicates the historical path of major Swiss variables.
JEL Codes E32, E52
Keywords DSGE, monetary policy, nominal rigidities, price rigidities, Switzerland
File available from the publisher

Swiss GDP Revisions: A Monetary Policy View
Joint paper with Pamela Hall, Swiss National Bank, and Attilio Zanetti, Swiss National Bank. This paper focuses on Swiss GDP revisions and the uncertainty they generate from the point of view of monetary policy. After a description of the revisions features, we use GDP vintages to compute real-time output gaps using a production function approach. Then, with a nominal feedback rule, we assess the impact of GDP revisions – and hence output gap – on monetary policy. The main results are threefold. First, Swiss GDP revisions – similarly to those of other small economies – are large, and estimates converge slowly to their final value. Second, GDP mismeasurements clearly exacerbate the difficulty in estimating output gaps. Third, the impact of revisions on monetary policy varies over time. Via its effect on output gaps, ceteris paribus, the inaccuracy of GDP estimates risks introducing a procyclical bias in monetary policy decisions.
JEL Codes E37, E52, E58
Keywords GDP revisions, monetary policy, nominal feedback rule, real-time data, Switzerland
File available from the publisher

Interest Rate, Inflation Rate, and Real Estate Investment and their Relationships
Joint paper with Michel Peytrignet, Swiss National Bank. This paper analyses whether the real estate market offers a good hedge against inflation compared to other assets. Although the real estate market performs slightly better than financial assets in protecting investment against inflation, the role of a central bank in anchoring inflation expectations remains the main weapon against inflation
JEL Codes No code
Keywords Monetary policy, inflation, interest rate, pensions funds, real estate
File available from the publisher
Published in Prévoyance professionnelle suisse, 11-08, 33-34, 2008. In French, Taux d'intérêt, taux d'inflation et placements immobiliers: les liens existant entre ces entités
Published in Schweizer Personalvorsorge, 11-08, 33-34, 2008. In German, Zinssatz, Inflationsrate und Immoanlagen und deren Zusammenhänge

Inflation Targeting in a small Open Economy
Joint paper with Harris Dellas, University of Bern, and Jean-Marc Natal, Swiss National Bank. In this paper we offer a justification for the observed, wide variation in monetary practices across industrial countries. Differences in the monetary policy rule adopted may simply reflect differences in economic structure, and in particular, in the types of shocks encountered and nominal rigidities present in various countries. External shocks tend to favor the adoption of some sort of inflation targeting procedure. Domestic supply shocks, on the other hand, may call for greater tolerance of short-run inflation movements, specially in the presence of nominal wage rigidities.
JEL Codes E32, E52, E58
Keywords Inflation targeting, monetary practices, nominal rigidities, shocks, small open economy
File available form the publisher
Published in International Finance, 11(1), 1-18, 2008

Policy-Relevant Models for Central Banks
In the autumn of 2005, the Swiss National Bank (SNB) hosted an academic conference entitled 'Policy-relevant models for central banks'. This event, bringing together outstanding academics and central bankers from all over the world, was the fourth gathering to be co-organised together with the Federal Reserve Bank of Cleveland (FRBC) and the Bank of Canada (BC). Such meetings are valuable for both central bankers and academics, because researchers from both groups complement one another in terms of their expertise. On the one hand, the central banks base their monetary policy decisions upon theory-based models and constantly adapt these models to new advances in monetary economics research. Thus, central bankers provide academics with constructive feedback, while testing, using, and improving their prototype models. On the other hand, academics continuously develop the central bank models of the future. Therefore, such academic conferences help participants maintain and further develop their current models as well as design future ones. After presenting the portfolio of forecasting models used at the SNB, this paper reviews the different methodological approaches to economic modelling in central banks. It then briefly discusses and sums up the papers presented at the conference, revealing the links between the models used in central banks and the various topics touched upon at the conference.
JEL Codes No code
Keywords Central bank, model
File available from the publisher
Published in Quarterly Bulletin Swiss National Bank, 24(2), 54-63, 2006. Available in French and German

Monetary Arrangements for a Small Open Economy
Joint paper with Harris Dellas, University of Bern, and Jean-Marc Natal, Swiss National Bank. This large paper is a previous version of the publications in International Finance and in Open Economies Review (see above)
JEL Codes E32, E52, F33, F42
Keywords Exchange rate regimes, monetary policy, nominal rigidities, price rigidities
No file
Presented at the Cleveland Fed, Fall 2004

Is Europe a Large Switzerland? Or Switzerland a Small Europe? A Monetary and Fiscal Policy Parallel
Joint paper with Massimiliano Castelli, UBS. The recent decision by EU's finance ministers to suspend the Stability and Growth Pact has shown some weaknesses in EMU's economic policy framework. This is not surprising given the still short-lived EMU's history and the ongoing challenges posed by the European construction. While a new pact is badly needed, Switzerland's experience can provide some important insights in the current debate in Europe. Switzerland is per construction a small Europe. Like in the EU, Swiss states (cantons) are diverse in terms of income and industrial specialization. They operate in a monetary union with interest rates set out at a federal level and a flexible exchange rate determined in global financial markets. Like the euro area, Switzerland can hardly be defined as an optimal currency area. In addition, Switzerland is a multilingual country, which makes it more similar to the EU rather than to the US. Switzerland, however, differs from the euro area in terms of economic policy settings. Regarding monetary policy, the Swiss framework is relatively similar to the European one, but its fiscal policy strongly differs. The cleverly designed Helvetian fiscal policy framework is based on tax competition between cantons, full implementation of the subsidiarity principle, and a mechanism through which rich cantons transfer funds to poor ones. This perequation attenuates the negative side-effects of tax competition (e.g. no race to the bottom) by providing all cantons with sufficient resources to supply an adequate level of public goods. The mix of monetary integration, a credible monetary authority, and an effective fiscal setting makes the Swiss economic policy framework more stable and flexible than the European one. The European Central Bank's credibility is coupled with a fiscal policy framework based on clumsy tax harmonization and a rigid and arbitrary Stability and Growth Pact
JEL Codes E50, H20, H30
Keywords Europe, Perequation, SGP, Switzerland
Published in I.D. Salavrakos (ed.) Aspects of Globalisation, Regionalism and Business, ATINER, 257-270, 2004

Demography and Provision: Effects on the Second Pilar
Non-technical paper about the demographic effects on provision systems with Heinz Zimmermann and Andrea Bubb
JEL Codes G2, J1
Keywords Aging, Demography, Provision
Files French and German
338KB 338KB
Published in La Vie économique (Revue de politique économique), 75(3), 23-29, 2002. In French, Vieillissement démographique et systèmes de prévoyance: l'incidence sur le deuxième pilier
Published in Die Volkswirtschaft (Magazin für Wirtschaftspolitik), 75(3), 23-29, 2002. In German, Demographische Alterung und Vorsorgesysteme - Auswirkungen auf die Zweite Säule

Future Immigration Policy for Switzerland: A Possible Sketch
Short description of a possible immigration policy for Switzerland following a point system in order to avoid a decrease in the population and to allow getting highly skilled immigrants
JEL Codes G2, J1
Keywords Aging, Demography, Immigration, Society
Files French
26KB 135KB
Unpublished, Fall 2001. In French, Pour une nouvelle politique d'immigration

Electronic Money as Realization of Private Money?
Short non-technical paper based on the e-money paper (Electronic Money. Reality or Fiction) published in La Vie économique and Die Volkswirtschaft. Comments from Martin Herzog in order to answer the question
JEL Codes E51, E59
Keywords Electronic money, Electronic payments, Interest rate, Private money
File German
Published in Evolution (Forum der Inwo Schweiz), 31(5), 4/5/8, 2001. In German, Elektronisches Geld als Verwirklichung des Freigeldes?

Electronic Money. Reality or Fiction
Non-technical paper about forms, characteristics and consequences of electronic money
JEL Codes E51, E59
Keywords Electronic money, Electronic payments, Interest rate, Private money
Files French and German
280KB 318KB
Published in La Vie économique (Revue de politique économique), 74(4), 49-53, 2001. In French, La monnaie électronique: réalité et fiction
Published in Die Volkswirtschaft (Magazin für Wirtschaftspolitik), 74(4), 49-53, 2001. In German, Elektronisches Geld: Wirklichkeit und Fiktion

Alternative Indicator of Monetary Policy for a Small Open Economy
We analyze several identification frameworks based on operating procedures to measure monetary policy in a small open economy. We use a two-stage nonrecursive VAR model to identify monetary shocks. We construct then various overall monetary policy indicators based on different residuals treatments and report them as weighted sums of monetary policy variables. Finally, we apply our framework to the Swiss National Bank. Our main indicator reveals that the exchange rate was the dominant variable at the end of the seventies. During the eighties, aggregates had their golden age, while in the nineties, the call rate showed up as an operating variable
JEL Codes E50, E52
Keywords Identification, Indicator, Monetary policy, Operating procedures, Shocks, Switzerland, VAR
435KB 835KB 59KB do not run within browser
Working paper 0012, Studienzentrum Gerzensee, 2000

Monetary Policy with Forward-Looking Rules: The Swiss Case
We estimate monetary policy rules in Switzerland for 1981-1997. In addition to an inflation gap, we find that forward-looking rules with output and exchange rate gaps nicely fit monetary aggregates as well as the call rate. We split the sample in 1990 when the Swiss National Bank replaced annual targets by medium-term targets for its official policy instrument, the monetary base. We find then that our rule best describes M0 and M1 before 1990 and only the call rate after 1990. Moreover, such small open economy rules are robust with respect to different central bank information sets
JEL Codes E52, E58
Keywords Exchange rate, Monetary policy instrument, Output gap, Robustness, Rule, Switzerland
411KB 835KB 72KB
Working paper 0010, Studienzentrum Gerzensee, 2000

A Monthly Time Series of Swiss Gross Domestic Product: Business Cycle Indicator and Research Tool
Working paper (wp, August 1999) and non-technical overview (nto, September 1999) written with Martin K. Hess
JEL Codes E32, E37
Keywords Interpolation, Kalman filter, National accounting, Switzerland
File WP
Files NTO
30KB 204KB 44KB 84KB do not run within browser
Published in La Vie économique (Revue de politique économique), 72(9), 32-33, 1999. In French, Une série mensuelle pour le produit intérieur brut de la Suisse. Indicateur conjoncturel et outil de recherche
Published in Die Volkswirtschaft (Magazin für Wirtschaftspolitik), 72(9), 32-33, 1999. In German, Eine monatliche Datenreihe für das Bruttoinlandprodukt. Konjunkturindikator und Hilfsgrösse für die Forschung

Estimating Monthly GDP in a General Kalman Filter Framework: Evidence From Switzerland
Paper written with Martin K. Hess. In this paper, we estimate deseasonalized monthly series for Swiss gross domestic product at constant prices of 1990 for the period 1980-1998. They are consistent with the quarterly figures estimated by the Federal Office for Economic Development and Labour and are obtained by including information contained in related series. We present a general approach using the Kalman filter technique nesting a great variety of interpolation setups. We evaluate competing models and provide a time series that can be used by other researchers. (Working paper 9902, Studienzentrum Gerzensee, 1999)
JEL Codes E32, E37
Keywords Interpolation, Kalman filter, National accounting, Switzerland
480KB 37KB do not run within browser
Published in Economic and Financial Modelling, 7(4), 153-194, 2000

Ph.D. Program in Economics at Studienzentrum Gerzensee
Brief opinion about the excellent Ph.D. program in Gerzensee
Files French
16KB 69KB
Published in Friconomy, University of Freiburg, (2), 27, 1999. In French, Une excellente expérience humaine

European Regional Economics: Comparative Analysis Between France, Italy, and Germany
B.A. Thesis University of St. Gallen
JEL Codes R1
Keywords Europe, Regions
File French
254KB appendices not given
Unpublished, Fall 1992. In French: Politique régionale dans les pays européens: analyse comparative entre la France, l'Italie et l'Allemagne