Schweizerische Nationalbank

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New SNB Economic Note: Jayson Danton and Stéphane Riederer describe how changes in interest rates affect the profitability of Swiss domestically focused banks, and show why the rate increases in 2022 and 2023 had a positive effect on their net interest income. Abstract: A fundamental economic function of the banking system is maturity transformation. This occurs when banks use short-term deposits (which can be withdrawn quickly by customers) to fund long-term loans (which are typically repaid much later by customers). Maturity transformation creates so-called interest rate risk for banks, as changes in market interest rates can affect their profitability—or even their financial soundness. Managing this risk is particularly important for banks whose business model relies on maturity transformation, which is the case for Swiss domestically focused banks. In this note, we explain why the interest rate increase in 2022 and 2023 was profitable for these banks, while further interest rate increases would have been detrimental due to the materialisation of interest rate risk. https://lnkd.in/d2gUkUgf

New SNB Working Paper: Filippo Cavaleri, Angelo Ranaldo and Enzo Rossi study Swiss Treasury bond auctions. They show that long-term investors (e.g. pension funds and insurance companies) exhibit different bidding behaviour from short-term investors (e.g. dealer banks). Abstract: This paper examines how heterogeneity in investment horizons determines the demand for safe assets, bidding strategies in auctions, and post-auction price dynamics. We model a uniform-price double auction with resale where long-term investors hold assets to maturity, while dealer banks distribute the asset in secondary markets. Pure private (common) values emerge when only long-term investors (dealers) participate. Using unique data on Swiss Treasury bond auctions revealing bidders’ identities, our empirical findings support key predictions: (1) substantial heterogeneity in demand schedules, with steeper demand curves for dealer banks; (2) dealer banks’ demand becomes steeper with increased demand risk and bid dispersion; and (3) demand elasticity positively predicts post-auction returns. https://lnkd.in/dgPUjZ2n

New SNB Working Paper: Marius Faber, Kemal Kilic, Gleb Kozliakov and Dalia Marin show that higher uncertainty, in combination with better automation technologies, has likely contributed to the slowdown in globalisation since the Global Financial Crisis of 2007/08. Abstract: The world economy has become more and more globalized as firms have organized production along global value chains. But more recently, globalization has stalled. This paper shows that higher uncertainty, in combination with better automation technologies, has likely contributed to that trend reversal. We show that plausibly exogenous exposure to uncertainty in developing countries leads to reshoring to high-income countries, but only if industrial robots have made this economically feasible. In contrast, we find no strong evidence of nearshoring or diversification. We address concerns about reverse causality by showing that results hold when using two alternative identification strategies. In a narrative approach, we use only locally generated spikes in uncertainty, for which the narrative around the events suggest that they are plausibly exogenous. In a small open economy approach, we restrict the sample to small developed countries that are unlikely to cause uncertainty in the developing world. Moreover, we show that results are robust to the main threats to identification related to shift-share instruments. https://lnkd.in/d849r5qN

New SNB Working Paper: David Borner proposes a new method for measuring how financial markets react to the SNB’s monetary policy announcements. Abstract: This paper presents a novel high-frequency motive classification strategy - the Trading Markov Sign Restriction (TMSR) - to map pure monetary policy and central bank information motives onto monetary surprises. It considers high-frequency dynamics on the interest rate futures and the stock market and examines systematic phases of expectation adjustment behaviour within 30-minute windows around policy announcements. I show that three systematic phases of expectation adjustment intensities can be observed for monetary policy announcements from the Swiss National Bank (SNB). Based on these identified phases, trends in trading directions on the interest rate futures and stock market are then weighted by a measure of expectation adjustment intensity to classify pure monetary policy and central bank information motives per policy announcement. Studying the effects of pure monetary policy and central bank information surprises reveals that both types of surprises affect financial assets; however, for the Swiss case, these effects differ from each other only for the exchange rates and stock market responses. https://lnkd.in/dnidMavK

New SNB Economic Note: Florence Miguet Heimlicher estimates the savings accumulated by Swiss households during the COVID-19 pandemic and considers the assets in which these savings were invested. Abstract: As observed in many advanced economies during the COVID-19 pandemic, Swiss households accumulated substantial additional savings. This resulted from an unprecedented and involuntary decline in consumption concurrent with fiscal support that compensated households for their loss in income. Households accumulated between CHF 30 and 40 billion in savings in excess of what the pre-pandemic trend would have predicted. These so-called pandemic savings correspond to between 4% and 5% of the annual GDP. In this Economic Note, I show that pandemic savings were primarily invested in equities and, to a lesser extent, debt securities. Since equities and debt securities are typically long-term investments, these pandemic savings appear unlikely to translate into a consumption boom in the near term. https://lnkd.in/dkCkCE6Y

New SNB Working Paper: Using anonymized card payment data, Aurel Ruben Mäder, Matthias Jüttner and Daniel Gatica-Perez analyze the payment behavior of different sociodemographic groups. Abstract: Understanding the payment behavior of sociodemographic groups is important for public institutions in designing inclusive policies. Thus, public institutions regularly conduct payment surveys to monitor the payment behavior of these groups. However, such surveys are costly, conducted infrequently, and limited in the number of participants. This paper presents a methodology that enables policy-makers to monitor the payment behavior of sociodemographic groups with card data while complying with privacy rights. Specifically, it provides a correlational analysis of payment behavior across sociodemographic groups, demonstrates the potential of payment data to infer sociodemographic information and proposes a methodology for enriching card data with this information. This paper reveals that sociodemographic groups exhibit different payment behaviors, that groups can be inferred from payment data, and that anonymized card data can be enriched with sociodemographic information. https://lnkd.in/dxNsBJma

New SNB Economic Note: Florian Böser, Antoine Martin and Sabrina Stadelmann compare the various approaches used by major central banks, including the Swiss National Bank, in their implementation of monetary policy. Abstract: This note discusses the approaches of the Federal Reserve, European Central Bank, Bank of England, Sveriges Riksbank and Swiss National Bank for implementing monetary policy. Interestingly, the current approaches chosen by these central banks cover all stylised options suggested by the well-established theoretical framework of Poole (1968). The different choices can be explained by specific implementation objectives and institutional settings. https://lnkd.in/dbvfc47w

Monetary policy assessment: A replay of the news conference with the Governing Board is available here: https://lnkd.in/dgp9n79x

Monetary policy assessment of 12 December 2024 Swiss National Bank eases monetary policy and lowers SNB policy rate to 0.5% The Swiss National Bank is lowering the SNB policy rate by 0.5 percentage points to 0.5%. The new policy rate applies from tomorrow, 13 December 2024. Banks’ sight deposits held at the SNB will be remunerated at the SNB policy rate up to a certain threshold, and at 0% above this threshold. The SNB also remains willing to be active in the foreign exchange market as necessary. The press release and introductory remarks delivered by the Governing Board members at the news conference are available on our website: English: https://www.snb.ch/en/ Deutsch: https://www.snb.ch/de/ Français: https://www.snb.ch/fr/ Italiano: https://www.snb.ch/it/