What are the drivers of the large Target2 (T2) balances that have emerged in the European Monetary Union since the start of the financial crisis in 2007? This paper examines the extent to which the evolution of national T2 balances can be statistically associated with cross-border financial...

We provide evidence that a bank's subordinated debt yield spread is not, by itself, a sufficient measure of default risk. We use a model in which subordinated debt is held by investors with superior knowledge (informed investor). First, we show that in theory the yield spread on subordinated...

This paper argues that the expansion in reserves following recent quantitative easing programs of the Federal Reserve may have affected long-term interest rates through liquidity effects. The data lends some support for liquidity effects, in that reserves were negatively correlated with...

In reaction to recent requests for interoperability between central counterparties of European stock markets, regulators have issued new guidelines to contain systemic risk. Our analysis confirms that the currently applied cross-CCP risk management model can be a source of contagion,...

Financial markets are known for overreacting to public information. Central banks can reduce this overreaction either by disclosing information to a fraction of market participants only (partial publicity) or by disclosing information to all participants but with ambiguity (partial...

How should monetary authorities react to an oil price shock? The New Keynesian literature has concluded that ensuring perfect price stability is optimal. Yet, the contrast between theory and practice is striking: Inflation targeting central banks typically favor a longer run approach to price...

This paper estimates Taylor rules using real-time inflation forecasts of the Swiss National Bank's (SNB) ARIMA model and real-time model-based internal estimates of the output gap since the onset of the monetary policy concept adopted in 2000. To study how market participants understand the...

The Swiss National Bank (SNB) provides reserves to market participants via fixed rate tender auctions. We analyze the banks’ bidding behavior and identify the determinants for the decision to participate as well as on the amount to tender. Therefore, we estimate bidding functions for banks...

Based on real-time trade data from the Swiss franc overnight interbank repo market and SIX Interbank Clearing (SIC) – the Swiss real-time gross settlement (RTGS) system – we are able to gain valuable insights on the daytime value of money and its determinants: First, an implicit hourly...

This paper presents a DSGE (dynamic stochastic general equilibrium) model of the Swiss economy used since 2007 in the monetary policy decision process at the Swiss National Bank. In addition to forecasting the likely course of main macro variables under various scenarios for the Swiss economy,...