The franc shock and Swiss GDP: How long does it take to start feeling the pain?
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Author
Date
2015-02Type
- Working Paper
ETH Bibliography
yes
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Abstract
The paper addresses the question on what is the typical time horizon over which a full transmission of movements in the real exchange rate into real economy takes place. To this end, we base our analysis on the mixed-frequency small-scale dynamic factor model of Siliverstovs (2012) fitted to the Swiss data. In this paper, we augment the benchmark model with the real exchange rate of the Swiss franc vis-a-vis currencies of its 24 trading partners, while keeping the rest of model specification intact. We are interested in investigating the relationship between the common latent factor, representing the Swiss business cycle, and the real exchange rate. We explore the temporal relationship between these two variables by varying the time lag with which the real exchange rate enters the factor model by recording magnitude and statistical signi cance of the factor loading coefficient in the equation pertaining to the real exchange rate variable. Our main conclusion is that the fluctuations in the exchange rate start influencing real economy after one month and their eff ect is practically over after thirteen months. The largest eff ect is recorded at the time horizon of about six to nine months. Show more
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https://doi.org/10.3929/ethz-a-010385479Publication status
publishedJournal / series
KOF Working PapersVolume
Publisher
KOF Swiss Economic Institute, ETH ZurichSubject
BRUTTOINLANDSPRODUKT; SCHWEIZER FRANKEN (GELDWESEN); Exchange rate; Mixed-frequency data; SCHWEIZ (MITTELEUROPA). SCHWEIZERISCHE EIDGENOSSENSCHAFT; SWITZERLAND (CENTRAL EUROPE). SWISS CONFEDERATION; ECONOMIC ANALYSIS; SWISS FRANC (MONETARY SYSTEM); MAKROÖKONOMISCHE MODELLE (OPERATIONS RESEARCH); GROSS DOMESTIC PRODUCT; WECHSELKURS; Factor model; GDP growth; MACROECONOMIC MODELS (OPERATIONS RESEARCH); EXCHANGE RATE; WIRTSCHAFTLICHKEITSANALYSEOrganisational unit
02525 - KOF Konjunkturforschungsstelle / KOF Swiss Economic Institute
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ETH Bibliography
yes
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