Thursday, January 15, 2015

Switzerland depreciated their currency and still had deflation


The SNB pegged their currency to the Euro in order to devalue it, but they still had deflation (or really low inflation). It did move the exchange rate -- which Scott Sumner thinks is a sufficient indication is an indicator [Sumner disagreed with that characterization, however see here**] for looser monetary policy. 

However:


The SNB has decided to let their currency appreciate again after the devaluation failed to produce inflation or spur growth -- as would be predicted by a liquidity trap model.

** Sumner:

"BTW, Kuroda is engaged in monetary offset (the yen has recently fallen from 109 to 118)" 

I would say engaging in monetary offset is looser policy; tighter policy would stand to see a rise in the Yen.

Updated with footnote 1/15/2015 11:48 PST

3 comments:

  1. Jason,

    What does your model predict about Swiss prices going forwarded?

    ReplyDelete
    Replies
    1. I will update the model for Switzerland to get exact numbers and post a link here, but the prediction is continued inflation near zero (or slight deflation). You can imagine linearly extending the price level line in the graph at this link:

      http://informationtransfereconomics.blogspot.com/2014/08/lowflation-is-meaningful-concept.html

      Essentially, the same outlook as Japan in its 'lost decade'.

      Delete
    2. Here is the graph with the prediction (essentially inflation = zero for the next year, on average):

      http://informationtransfereconomics.blogspot.com/2015/01/floating-swiss-franc-wont-change-price.html

      Delete

Comments are welcome. Please see the Moderation and comment policy.

Also, try to avoid the use of dollar signs as they interfere with my setup of mathjax. I left it set up that way because I think this is funny for an economics blog. You can use € or £ instead.