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End of Peg Buiter Critique

In a Citi research note, Willem Buiter discusses the SNB’s decision to discontinue the exchange rate floor of the Swiss Franc vis-a-vis the Euro. His main points are:

  • The removal of the 1.20 floor on the CHF-euro exchange rate was a mistake.
  • Superior policy alternatives existed.
  • The old regime was indefinitely sustainable.
  • Removing the lower bound on nominal interest rates would have been the best choice. This can be done one of three ways.
  • The economic damage can be limited by restoring the exchange rate floor at a level not below the old one, and/or by eliminating the lower bound on nominal interest rates.
  • The rest of the world can learn from the SNB’s experience with a -0.75% deposit rate.

Buiter refers to his earlier work on removing the lower bound on nominal interest rates that I have discussed elsewhere (here and here).

Full story here
Dirk Niepelt

Dirk Niepelt is Director of the Study Center Gerzensee and Professor at the University of Bern. A research fellow at the Centre for Economic Policy Research (CEPR, London), CESifo (Munich) research network member and member of the macroeconomic committee of the Verein für Socialpolitik, he served on the board of the Swiss Society of Economics and Statistics and was an invited professor at the University of Lausanne as well as a visiting professor at the Institute for International Economic Studies (IIES) at Stockholm University.

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Permanent link to this article: https://snbchf.com/2015/01/niepelt-end-peg-buiter/

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