Economics, Econometrics and Finance
7 years ago

Swiss franc volatility spikes with informal target zone model, impacting exchange rates

Review of International Economics
Informal one‐sided target zone model and the Swiss franc
Yu‐Fu Chen, Michael Funke, Richhild Moessner

Paper Summary

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A new model was created to study the Swiss franc's exchange rate after a policy change in 2015. The model shows that unclear exchange rate policies can lead to more volatility in exchange rates. Soft edge target zones can make exchange rates more unpredictable. When financial markets expect changes in exchange rate policies, it can cause exchange rates to fluctuate more. It's important for exchange rate policies to be clear to reduce volatility.