Why are Switzerland's Foreign Assets so Low? The Growing Financial Exposure of a Small Open Economy

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractSwitzerland's international investment position shows a puzzling feature since 1999: Large and persistent current account surpluses have failed to boost the value of Swiss foreign assets. In this paper, we link this pattern to the substantial increase in the leveraging of Switzerland's international assets and liabilities over the last twenty years, which we document in detail. We estimate the impact of exchange rate and asset prices movements on Swiss net foreign assets, and show that they led to substantial valuations losses since 1999, accounting for between one-quarter and one-half of the gap between the net foreign assets and cumulated current account flows. We show how these adverse valuation effects have erased Switzerland's advantage in terms of the yield on its net foreign asset position.

Exchange Rate Returns and External Adjustment: Evidence from Switzerland

“…For Switzerland, however, we find μ a = 3.42 and 9 The increase in Switzerland's net foreign assets has been smaller than what is implied by the size of current account surpluses. This is because of valuation changes, as discussed in Stoffels and Tille (2007). Note also that the economically relevant size of the current account surplus is smaller than its measured size.…”

Risk-Off Episodes and Swiss Franc Appreciation: The Role of Capital Flows

“…Exchange rate and valuation effects play a central role in the evolution of Swiss net foreign asset position, in the light of increasingly leveraged international assets and liabilities position. Since 1999, exchange rate and asset price movements have led to substantial valuation losses, so large and persistent current account surpluses have failed to boost the value of Swiss foreign assets (Stoffels and Tille, 2007). deleveraging, as Swiss banks' gross balance sheet positions against foreign resident entities shrink by substantially more than the Swiss franc appreciates in real effective terms after a risk-off episode.…”

“…Exchange rate and valuation effects play a central role in the evolution of Swiss net foreign asset position, in the light of increasingly leveraged international assets and liabilities position. Since 1999, exchange rate and asset price movements have led to substantial valuation losses, so large and persistent current account surpluses have failed to boost the value of Swiss foreign assets (Stoffels and Tille, ).…”

The Significance of Switzerland's Enormous Current-Account Surplus

“…The share of foreign-currency assets rose from 62% in 1985 to 87% in 2005 and then edged back to 82% in 2006, while the share of liabilities in foreign currencies fell in the first decade and then rebounded to 45% in 2005 before falling back to 42% in 2006 (SNB, 2007a and2007b). But easily the most puzzling feature of these accounts is the fact that these large and persistent current-account surpluses have failed to lead to corresponding increases in Switzerland's net asset position (Stoffels and Tille, 2007;SNB, 2007b). 14 This "disconnect" began at the turn of the millennium: since end-1999and only until 2006cumulative net financial outflows represent 85.4% of 2006 GDP, but SNB estimates of net foreign assets have risen by a meagre 11.6% of that GDP.…”