Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/204927
Authors: 
Canetg, Fabio
Kaufmann, Daniel
Year of Publication: 
2019
Series/Report no.: 
Discussion Papers 19-01
Abstract: 
We identify the dynamic causal effects of interest rate floor shocks, exploiting regular auctions of Swiss central bank debt securities (SNB Bills). A theoretical model shows that variation in the volume of, and yield on, central bank debt changes the interest rate floor. In addition, the model establishes the equivalence between central bank debt and interest-bearing reserves when reserves are ample. Based on these insights, the empirical analysis identifies an interest rate floor shock in a dynamic event study of SNB Bill auctions. A restrictive interest rate floor shock causes an increase in the money market rate, a persistent appreciation of the Swiss franc, a decline in long-term interest rates, and a decline in stock prices. We then perform policy experiments under various identifying assumptions in which the central bank raises the interest rate floor from 0% to 0.25%. Such a policy change causes a 3-6% appreciation of the Swiss franc and a 5-20% decline in stock prices.
Subjects: 
Exit strategies
interest rate floors
central bank debt securities
interest on reserves
monetary policy shocks
identification through heteroscedasticity
JEL: 
E41
E43
E44
E52
E58
C32
Document Type: 
Working Paper

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