Research

contact: fabio.canetg@vwi.unibe.ch | social media: twitter / linkedin / facebook / instagram | #SwissMonetaryPolicy

Shocking Interest Rate Floors

Joint work with Daniel Kaufmann (University of Neuchâtel). Working paper, May 14, 2019; the paper is available as a Department of Economics, University of Bern Discussion Paper and as a University of Neuchâtel IRENE Working paper. The latest version is available below.

We analyze central bank debt as a tool to control money market rates. We show in a theoretical model that the money market rate increases with the volume of, and yield on, central bank debt. Moreover, issuing central bank debt implements an interest rate floor, similar to paying interest on reserves. We then exploit the unique institutional setting of a Swiss debt security program to identify the dynamic causal effects of two orthogonal shocks through heteroscedasticity. The money market rate shock has modest effects on other financial market variables. The expectation shock causes a strong and persistent appreciation of the Swiss franc, a decline in stock prices, a decline in long-term interest rates, and a rise in corporate bond risk premia. The two shocks explain up to 80% of the forecast-error variance in these variables.


Presented at KOF Swiss Economic Institute, ETH Zurich (Switzerland), October 2019; Swiss National Bank Research Seminar (Switzerland), October 2019; Swiss National Bank Research Conference (Switzerland), September 2019; Research Conference on Macroeconomic Modelling and Model Comparison (MMCN), Goethe University Frankfurt (Germany); June 2019, Swiss Society of Economics and Statistics, Annual Congress, Graduate Institute Geneva, June 2019; Annual Congress of the European Eoonomic Association (EEA), University of Manchester (United Kingdom), August 2019; RCEA Macro-Money-Finance Conference, Rimini Centre for Economic Analysis Waterloo (Canada); the MacroGroup seminar, Department of Economics, University of Bern (Switzerland), March 2019; the 8th PhD Student Conference in International Macroeconomics and Financial Econometrics, Université Paris Nanterre (France), March 2019; the Brown Bag seminar, Department of Economics, University of Bern (Switzerland), March 2019; the 12th RGS Doctoral Conference in Economics, Ruhr-Universität Bochum (Germany) Februar 2019; the Young Swiss Economist Meeting, KOF Swiss Economic Institute, ETH Zurich (Switzerland), February 2019; the Brown Bag seminar, Department of Economics, University of Bern (Switzerland), October 2018; the MacroGroup seminar, Department of Economics, University of Bern (Switzerland), October 2018.
Canetg Kaufmann Shocking Interest Rate Floors, October 2019.pdf

Strategic Deviations in Optimal Monetary Policy

Working paper, July 19, 2018; the paper is available as a Department of Economics, University of Bern Discussion Paper.

This paper investigates the circumstances under which a central bank is more or less likely to deviate from the optimal monetary policy rule. The research questions is addressed in a simple New Keynesian dynamic stochastic general equilibrium (DSGE) model in which monetary policy deviations occur endogenously. The model solution suggests that higher future central bank credibility attenuates the current period policy trade-off between a stable inflation rate and a stable output gap. Together with the loss of credibility after a policy deviation, this provides the central bank with an incentive to implement past policy commitments. My main result shows that the central bank is willing to implement past policy commitments if a sufficient fraction of agents is not aware of the exact end date of the policy commitment. This finding challenges the time-inconsistency argument against monetary policy commitments and provides a potential explanation for the repeated implementation of monetary policy commitments in reality.


Presented at the Swiss Society of Economics and Statistics, Annual Congress, Universität St. Gallen, June 2018, the Gerzensee 16BDP: Alumni Seminar, Engelberg (Switzerland), April 2018, the RGS Doctoral Conference in Economics, Universität Duisburg-Essen (Germany), February 2018, the MacroGroup seminar, Department of Economics, University of Bern (Switzerland), February 2018, the Gerzensee Alumni Conference, Study Center Gerzensee (Switzerland), December 2017.
Fabio Canetg Strategic Deviations in Optimal Monetary Policy.pdf

Communicating Forward Guidance

Second draft, December 19, 2017.

This paper studies the communication of forward guidance when both commitment and information is limited. Forward guidance is modeled as an optimal monetary policy scheme with limited commitment. The central bank truthfully discloses its degree of commitment at some predefined frequency, ranging from weekly to no-information. In between information periods, the public forms a believe about the degree of commitment. The implications of different communication frequencies for macroeconomic volatility and welfare are analyzed in a simple New Keynesian model. The main finding is that maximum transparency is optimal if the public underestimates the central bank's degree of commitment, and vice versa.

Full draft on request, fabio.canetg@vwi.unibe.ch.


Presented at the MacroGroup seminar, Department of Economics, University of Bern (Switzerland), November 2017, the Macro Finance Meeting, Wengen (Switzerland), March 2017, the Brown Bag seminar, Department of Economics, University of Bern (Switzerland), September 2016

Année Politique Suisse

The Année Politique Suisse (APS) is part of the Institute of Political Science at the University of Bern. During my time as an editor for APS, I published three bookchapters about the Swiss National Bank, banks, financial regulations, and international financial institutions.

Année Politique Suisse 2014 (Geld, Währung und Kredit) (partly available online here)

Année Politique Suisse 2013 (Geld, Währung und Kredit) (partly available online here)

Année Politique Suisse 2012 (Geld, Währung und Kredit) (partly available online here)