Ppt Slide Macro

8/11/2019 Ppt Slide Macro

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SwitzerlandGroup members: Ong Yee Cia

Lee Xin YiLee Jing Mei

Tzai Yin Yin


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Implications of policies on

macroeconomics variable

Monetary Policy

UBS with

high debtlevel

Contractionary

monetarypolicy

Government sell

its securities &

uses the fund toinject capital

into UBS

Reduces distrust

among banks

Interbank ratecharged on eachother decreases

1)On 2008,


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2)Following the event of euro debt crisis, Swiss franc has been

extremely overvalued:

Expansionary monetary policyGovernment buy unlimitedquantities of foreign currencyvalue of Swiss Franc fall

Increase back ExportBalance of trade increase.

3)Unconventional monetary policy

Fixing target range for LIBOR,

-> Expansionary monetary policy : decrease interest rate-> Contractionary monetary policy: Increase interest rate

maintain price stability and prevent high levels of inflation and

deflation


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Fiscal policy

Nov 2008, government increase spending in public

investment ( building airports, bridge)

Increase projectsdecrease unemploymentincrease disposable

incomeconsumption increaseaggregate demand increase

Government increase spending on short-time working

schemes

Increase subsidies on wages& training system for youthequipped with

necessary skill to meet employers needUnemployed youth decrease


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Government reduce carbon taxes on those who

successfully reduce CO2 emission

Firm does not have to pay extra cost for carbon taxescost of production

decreaseprice goes downDisposable income increase

Consumption increaseAggregate demand increase.

Introduce debt brake on fiscal policy

During 1990s, Government debt increasedebt brake introduced on

2003This rule-based fiscal policy ensure government expenditure

balance with its incomeFinally reduces the government debt

Increase in Public confidenceInterest on long-term government debt

decrease.


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Rationale forimplementation of

Monetary Policy


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adjusting the interest rate.

more obvious effect

interest rate is controllable

in a regular intervals.


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expansionary

monetary

policy

decrease short-

term nominal

interest rate

demand in

investment

increased

Output

increased and

unemployment

decreased


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Nominal interest rate very near to zero

indifferent between holding more bonds or money

preferred to hold less bonds and more money at

the same interest rates.


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unconventional

monetary policy

Keep nominal interest rates in a lower

rate for a longer period

increase

inflation

expectation

Reduce current and

future expected

real interest rate

increase

spending

today


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Effectiveness

Monetary policy Goals

Conditional inflation forecast

Fix target range of the reference interest rates 3-

months CHF LIBOR (London Interbank Offered

Rates)

Control price stability

0-2%


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Average inflation rates

2000-2006 : Close to 1%

2007 : 0.73%

2008 : 2.43%

2009 : -0.48%

2010 : 0.69%


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2 priority goals during crisis

1st: To rebuild confidence in the financial system.

2nd: To resist an economic downturn and avoid

deflation.


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3 unconventional measures

1

st

: increase medium-term repo transaction2nd: purchase CHF-denominated bonds issued by private

sector

3rd: Buy foreign currency on the open market


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EffectivenessFiscal Policy- Debt Brake

-To stabilize Swisss federal debt

-Started to implement during year 2003

Why implement??

- In year 1990- 2005, Switzerlands federal debtwas increase significantly, rose from 38billion

Swiss Franc to more than 130billion Swiss Franc.


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Debt Brake rules:

Expenditure does not exceed the income

during each economic cycle

not allowed to have any new long-term

borrowing, yet it is still possible to have new

short-term borrowing


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At first, Swiss federal government was struggling with

high structural deficit

In year 2006, the debt brake was fully implemented.

The government was able to achieve balanced

budget and to the following years.


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END

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