Measuring Income Elasticity for Swiss Money Demand: What do the cantons say about financial innovation?

Recent time-series evidence has re-confirmed the forecasting ability of Swiss broad money. The same money demand studies and others, however, find that the income elasticity is greater than one. Such parameter estimates are difficult to reconcile with transactions demand theory. This study re-examines the estimates for income elasticity in money demand based on cross-regional evidence for Switzerland. Particular attention is given to the influence of regional financial sophistication. The cross-cantonal results find that the income elasticity lies between 0.4 and 0.6. This discrepancy between the two empirical methodologies has important consequences for the conduct of Swiss monetary policy.

Reuters News Reports versus Official Interventions: A Cautionary Warning

Reuters reports have become an accepted tool for empirical studies analyzing informationa l asymmetries in exchange rate markets. This paper tests the accuracy of the Reuters announcements for Swiss interventions. The evidence finds that the Reuters announcements are not concentrated just after the first intervention transaction as is assumed in empirical studies. The variance of the prediction error is measured in hours and not in minutes. A further assumption that the Reuters announcement always falls after the first actual transaction is found to be violated. At a minimum, the new empirical results question the accuracy of Reuters reports for small countries.

European hoarding: currency use among immigrants in Switzerland

Do immigrants have a higher demand for large denominated banknotes than natives? This study examines whether cash orders for CHF 1000 notes, a banknote not used for daily transactions, is concentrated in Swiss cities with a high foreign-to-native ratio. Controlling for a range of socio-economic indicators across 250 Swiss cities, European immigrants in Switzerland are found to hoard less CHF 1000 banknotes than natives. A 1 percent increase in the immigrant-to-native ratio leads to a reduction in currency orders by CHF 4000. This negative correlation between immigrant-to-native ratio and currency orders for CHF 1000 notes holds irrespective of the European immigrants' country of origin. Hoarding of large denominated banknotes by natives is attributed tax avoidance.Money ; Immigrants ; Bank notes ; Monetary policy

On the Inadequacy of Newswire Reports for Empirical Research on Foreign Exchange Interventions

Newswire reports have become an accepted tool for empirical studies analyzing informational asymmetries in FX markets. This paper tests the accuracy of such reports for Swiss interventions in the foreign exchange market. The evidence finds that the time stamp of the reports does not always lie near the recorded time of the first intervention trade as is commonly assumed in market microstructure studies. The standard deviation of the time difference is measured in hours and not in minutes. These and other regression results question the accuracy of newswire reports for Swiss interventions.Central Bank Interventions, Intra-Daily Data, Newswire Reports

Measuring Income Elasticity for Swiss Money Demand: What do the Cantons say about Financial Innovation?

Recent time-series evidence has re-confirmed the forecasting ability of Swiss broad money. The same money demand studies and others, however, find that the income elasticity is greater than one. Such parameter estimates are difficult to reconcile with transactions demand theory. This study re-examines the estimates for income elasticity in money demand based on cross-regional evidence for Switzerland. Particular attention is given to the influence of regional financial sophistication. The cross-cantonal results find that the income elasticity lies between 0.4 and 0.6. This discrepancy between the two empirical methodologies has important consequences for the conduct of Swiss monetary policy.Money Demand, Cross-Regional Estimates, Regional Financial Sophistication

Immigrant language barriers and house prices

Are language skills important in explaining the nexus between house prices and immigrant inflows? The language barrier hypothesis says immigrants from a non common language country value amenities more than immigrants from common language countries.> ; In turn, immigrants from non common language countries are less price sensitive to house price changes than immigrants from a common language country. Tests of the language barrier hypothesis with Swiss house prices show that an immigration inflow from a non common language country equal to 1 percent of an area's population is coincident with an increase in prices for single-family homes of about 4.9 percent. Immigrant inflow from a common language country instead has no statistically significant impact.Labor mobility