Since the Eurozone Crisis a host of monetary and fiscal instruments have been used to try to reinvigorate growth and achieve financial stability, with mixed results. Basel III’s counter-cyclical capital buffer (CCB) is one such instrument which was met with scepticism. This column uses evidence from the Swiss economy to show that given the right circumstances and political will, the CCB can achieve financial stability.
Jean-Pierre Danthine, 04 May 2016
Swati Dhingra, Thomas Sampson, 04 March 2016
In June, UK voters will decide whether to remain part of the EU. This column explores the UK’s options if a majority votes in favour of Brexit. One possibility is for the UK, like Norway, to join the European Economic Area and thereby retain access to the European Single Market. An alternative would be to negotiate bilateral treaties with the EU, as Switzerland has done. All options, however, involve a trade-off between political sovereignty and economic benefits.
Stefan Gerlach, Peter Kugler, 01 March 2016
The Swiss franc was created in 1850, but the Swiss National Bank wasn’t founded until 1907. The interim was a period of free banking, marked by two successive phases: one of free, unregulated note issue; and then one of strictly limited banking freedom. This column studies the Swiss banking market over this time. The number of banks is found to play an important role in determining the long-run money demand, and in the monetary adjustment process. Further, problems with harmonisation and common regulation created the incentives for monopolisation and centralisation.
Patrick Arni, Rafael Lalive, Gerard Van den Berg, 11 January 2016
The standard empirical evaluations of labour market policy only consider the direct effects of single programmes on their participants. This column argues that this fails to capture important aspects of real-world labour market policy – policy regimes and strategies. Using Swiss data, it employs a novel empirical approach that concurrently examines the effects of supportive and punitive policies (‘carrots’ and ‘sticks’). Policy regimes are shown to exert economically relevant effects, and accounting for these effects is crucial when designing labour market policy.
Andreas Beerli, Giovanni Peri, 17 August 2015
The case for immigration restrictions is periodically debated in the political arena. This column shows that fully opening the border to neighbouring countries increased immigrants to Switzerland only by 4% of the labour force over eight years. Such an increased inflow did not have significant aggregate effects. Highly educated workers, however, benefited in terms of higher wages, while middle-educated ones experienced employment losses.
Pınar Yeşin, 21 February 2015
Safe haven inflows to Switzerland during global turmoil have been mentioned numerous times by the financial press and international organisations. However, recent research cannot find evidence for surges of capital inflows to Switzerland. In fact, this column argues that private capital inflows to and outflows from Switzerland have become exceptionally muted and less volatile since the Crisis. By contrast, net private capital flows have shown significantly higher volatility since the Crisis, frequently registering extreme movements. However, these extreme movements in net flows are not driven by surges of inflows.
Dario Fauceglia, Andrea Lassmann, Anirudh Shingal, Martin Wermelinger, 18 February 2015
The sharp appreciation of the Swiss franc has once more raised fears about negative export growth and resulting losses for Swiss exporters. However, this column suggests that the Swiss economy’s high level of integration into global value chains potentially mitigates these negative effects by rendering imported intermediate inputs cheaper, thus reducing pressures on profit margins through the imported inputs channel.
Jon Danielsson, 18 January 2015
The Swiss central bank last week abandoned its euro exchange rate ceiling. This column argues that the fallout from the decision demonstrates the inherent weaknesses of the regulator-approved standard risk models used in financial institutions. These models under-forecast risk before the announcement and over-forecast risk after the announcement, getting it wrong in all states of the world.
Reto Foellmi, Isabel Martínez, 31 August 2014
Switzerland has had consistently low tax rates and a remarkably stable income distribution, although in the last 20 years the share of top incomes has risen. This column documents that the top 0.01%’s share doubled, meaning Switzerland is similar to European countries in terms of the top 1%’s income share, but closer to the US for higher top incomes. Labour incomes have grown in importance among top income earners. At the same time, however, top incomes have exhibited large and possibly increasing variations over the business cycle.
Patricia Funk, Christina Gathmann, 10 February 2012
As debt crises hit on both sides of the Atlantic, a safe haven for many investors has been Switzerland. This column looks at Swiss public spending over the last century and argues that one reason for its low debt may be its greater use of direct democracy, where people vote on individual policies, as opposed to representative democracy, where people elect others to make decisions on their behalf.
Bruce Blonigen, Lindsay Oldenski, Nicholas Sly, 26 November 2011
The most recent G20 summit led to a multilateral agreement to facilitate information sharing between tax agencies, with the US currently negotiating bilateral tax treaties with the tax havens of Switzerland and Luxembourg. But before celebrations begin, this column points out that cracking down on tax evasion comes at a cost. International investment may well suffer.
Raphael Auer, Sébastien Kraenzlin, 31 March 2011
Banks across the globe have a high balance-sheet exposure to foreign currencies. During the panic of the global financial crisis, the private supply of cross-border liquidity came to a halt, requiring government action. This column documents the unmet demand for cross-border liquidity for the case of the Swiss Franc and describes the countermeasures that were adopted by the Swiss authorities.
Cédric Tille, 12 March 2009
The biggest risk facing the Swiss economy is its large financial sector with substantial international exposure. Foreign currencies, mostly held by UBS and Credit Suisse, account for nearly two-thirds of banks’ balance sheets – an amount equivalent to four times annual GDP. This column suggests splitting the two large banks’ domestic and foreign operations, so that losses on the latter do not jeopardise the domestic financial system.
Patricia Funk, 28 November 2008
Patricia Funk of the Universitat Pompeu Fabra talks to Romesh Vaitilingam about her research on the impact of direct democracy on government spending, which draws on over a hundred years of data on the cantons of Switzerland. The interview was recorded at the annual congress of the European Economic Association in Milan in August 2008.