Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/128331 
Year of Publication: 
2015
Series/Report no.: 
CESifo Working Paper No. 5624
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
Currencies of countries with persistent current account surpluses and high foreign currency denominated assets such as the Swiss franc and Japanese yen are under a persistent appreciation pressure, what restricts the degree of freedom in the choice of exchange rate regime. Official announcements (implicit communication) of appreciations can trigger runs into the domestic currency, which make appreciation expectations self-fulfilling. The resulting negative growth effect is likely to trigger interest rate cuts, which can add to unsustainable financial exuberance. It is argued that horizontal exchange rate pegs are the most effective tool to stabilize economies with large net foreign asset positions.
Subjects: 
international investment position
appreciation-induced risk
exchange rate risk
foreign exchange intervention
monetary policy independence
Switzerland
Japan
JEL: 
F15
F31
F33
Document Type: 
Working Paper
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