Fluctuations in the Swiss Franc: What has Changed Since the Euro's Introduction?

Abstract

The monetary implications arising from EMU for Swiss monetary policy show up primarily in the exchange rate. Until now, fluctuations in the Swiss franc against the euro have been surprisingly moderate. The Swiss franc has thus tracked the euro's decline against the US dollar without experiencing strong inflationary pressure and a convergence in the interest-rate differential: a paradoxical result for a small open economy. This paper examines critically whether the recent record reveals information about a change in SNB monetary policy. It also attemps to shed light on the SNB's ability to implement an independent monetary policy with the new landscape defined by EMU. Four hypotheses of euro tracking are considered.