Monetary policy through exchange rate pegs: The removal of the Swiss franc-Euro floor and stock price reactions

Abstract

The Swiss National Bank abolished the exchange rate floor versus the Euro in January 2015. Using a synthetic matching framework, we analyze the impact of this unexpected (and therefore exogenous) policy change on the stock market. The results reveal a significant level shift (decline) in asset prices following the discontinuation of the minimum exchange rate. As a novel finding in the literature, we document that the exchange-rate elasticity of Swiss asset prices is around -0.75. Differentiating between sectors of the Swiss economy, we find that the industrial, financial and consumer goods sectors are most strongly affected by the abolition of the minimum exchange rate.

Publication
International Review of Finance, online first