Swiss monetary policy

In the last decades, the liquidity effect has been widely discussed in the economic literature. Most of the work done so far has been concentrated on the US scenario where researchers have made progress in studying this effect. The liquidity effect is an expression used in the context of monetary policy which describes the fact that an expansionary monetary policy leads to for example a contemporaneous decrease in the nominal and real interest rate in the short run. The aim of chapter 1 is to detail the items which must be taken into consideration and to explain the basis of the performed analysis. First, I will give some motivations for my analysis of VAR models in the thesis. Second, I describe the liquidity effect in detail. Third, I give a short introduction to VAR models. The intention of that section is to make a distinction between the existing types of VAR models. Fourth, I explain U. S. monetary policy and give an overview of the existing literature on VAR models. Finally, I explain the Swiss monetary policy and outline the differences from the U. S. monetary policy. In chapter 2, I empirically analyze Swiss monetary policy through VAR models. The two underlying VAR models in my thesis are used by the Swiss National Bank for inflation forecasts. The first model has entirely long-run restrictions and the second has entirely short-run restrictions. Until now the VAR models used by the Swiss National Bank (SNB) have only been estimated using a symmetric lag structure. I expect to get more efficient results by the employment of the asymmetric lag structure method proposed by Keating (2000). In chapter 2 I will also compare estimations of different lag structures and lag lengths in the two VAR models. A special focus is to validate the robustness of the results with respect to changes in lag lengths, lag structures, and estimation periods. In the comparison of the estimations I include exogeneity tests, impulse responses, variance decomposition, and inflation forecasts. In chapter 3, I analyze a simple DSGE model. The model I analyze here is for a closed economy with flexible prices. In this class of models it is assumed that monetary policy is able to generate a dominant and persistent liquidity effect.