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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