Do Foreign Exchange Interventions Pay Off? An Empirical Assessment of the Prevented Damage for the Swiss Export Sector

Abstract: This thesis conducts a cost-benefit analysis of the Swiss National Bank's foreign exchange interventions from 2009 to 2019, focusing on the Swiss export sector. To that end, the benefit of foreign exchange interventions in terms of the damage that would have occurred to the Swiss export sector in the absence of any foreign exchange interventions is calculated. The thesis is the first to conduct such an analysis for Switzerland and helps to put the costs of foreign exchange interventions in relation to their benefits. In a first step, the exchange rate elasticity of Swiss exports and the foreign exchange intervention elasticity of the real exchange rate are estimated. Subsequently, the prevented export sector damage is calculated using the two estimates. The calculation reveals that the costs of CHF 639.5 billion for foreign exchange interventions are CHF 77 billion higher than the benefits of CHF 562.5 billion. This difference seems justified in the light of the additional benefits that the foreign exchange interventions bring in terms of job preservation and creation and the prevention of structural changes in the Swiss economy.