Switzerland

Group members: Ong Yee Cia

Lee Xin Yi
Lee Jing Mei
Tzai Yin Yin
Implications of policies on
macroeconomics variable
Monetary Policy
UBS with
high debt
level
Contractionary
monetary
policy
Government sell
its securities &
uses the fund to
inject capital
into UBS
Reduces distrust
among banks
Interbank rate
charged on each
other decreases
1)On 2008,
2)Following the event of euro debt crisis, Swiss franc has been
extremely overvalued:
Expansionary monetary policy Government buy unlimited
quantities of foreign currency value of Swiss Franc fall
Increase back Export Balance 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
Fiscal policy
Nov 2008, government increase spending in public
investment ( building airports, bridge)
Increase projects decrease unemployment increase disposable
income consumption increase aggregate demand increase

Government increase spending on short-time working
schemes
Increase subsidies on wages& training system for youth equipped with
necessary skill to meet employers need Unemployed youth decrease
Government reduce carbon taxes on those who
successfully reduce CO2 emission
Firm does not have to pay extra cost for carbon taxes cost of production
decrease price goes down Disposable income increase
Consumption increase Aggregate demand increase.

Introduce debt brake on fiscal policy
During 1990s, Government debt increase debt brake introduced on
2003 This rule-based fiscal policy ensure government expenditure
balance with its income Finally reduces the government debt
Increase in Public confidence Interest on long-term government debt
decrease.
Rationale for
implementation of
Monetary Policy
adjusting the interest rate.
more obvious effect
interest rate is controllable
in a regular intervals.

expansionary
monetary
policy
decrease short-
term nominal
interest rate
demand in
investment
increased
Output
increased and
unemployment
decreased
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.
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
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%

Average inflation rates
2000-2006 : Close to 1%
2007 : 0.73%
2008 : 2.43%
2009 : -0.48%
2010 : 0.69%
2 priority goals during crisis
1
st
: To rebuild confidence in the financial system.
2
nd
: To resist an economic downturn and avoid
deflation.

3 unconventional measures
1
st
: increase medium-term repo transaction
2
nd
: purchase CHF-denominated bonds issued by private
sector
3
rd
: Buy foreign currency on the open market

Effectiveness
Fiscal Policy- Debt Brake
-To stabilize Swisss federal debt
-Started to implement during year 2003

Why implement??
- In year 1990- 2005, Switzerlands federal debt
was increase significantly, rose from 38billion
Swiss Franc to more than 130billion Swiss Franc.

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

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.

END