Current Account Surpluses and the Interest Rate Island in Switzerland

February 1, 1995

Preview Citation

Format: Chicago

Paolo Mauro. Current Account Surpluses and the Interest Rate Island in Switzerland, (USA: International Monetary Fund, 1995) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper describes some long-run aspects of the Swiss balance of payments, highlighting two macroeconomic phenomena that make Switzerland stand out among other countries: first, it has had a persistent current account surplus and the largest ratio of net foreign assets to GDP in the world; second, its real interest rates have been significantly lower than those of most other industrialized countries, earning it the label “interest rate island”. These two distinctive features may be related, and ultimately both may result from an excess of national savings over investment for many years. The real interest differential may largely be attributed to a foreign exchange rate risk premium, which compensates Swiss residents for holding net assets in foreign currency and foreign residents for bearing net liabilities in Swiss francs.

Subject: Balance of payments, Current account surpluses, External position, Financial services, Foreign assets, Foreign exchange, Interest rate parity, Purchasing power parity, Real interest rates

Keywords: Balance of payments, Current account surpluses, Deutsche mark, Exchange rate risk, Exchange rate risk risk premium, Expected return, Foreign assets, Foreign exchange, Global, Interest rate parity, Purchasing power parity, R&D spending, Rate of return, Real interest rate differential, Real interest rates, Real interest rates in Switzerland, Return on assets, Surplus in Switzerland, Switzerland real interest rates, Trade balance, Trade pattern, Trading partner, WP

Publication Details

Pages:

46
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1995/024
Stock No:

WPIEA0241995
ISBN:

9781451844085
ISSN:

1018-5941

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