The Swiss franc safety premium
Abstract This paper applies a recent method proposed by Maggiori (The U.S. Dollar Safety Premium, 2013) to estimate the Swiss franc safety premium. The results show that the three-step instrumental variable approach as used by Maggiori does not work for the Swiss franc exchange rates. The price of r...
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| Format: | Article |
| Language: | English |
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SpringerOpen
2018-04-01
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| Series: | Swiss Journal of Economics and Statistics |
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| Online Access: | http://link.springer.com/article/10.1186/s41937-017-0014-7 |
| _version_ | 1818992683957354496 |
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| author | Jessica Leutert |
| author_facet | Jessica Leutert |
| author_sort | Jessica Leutert |
| collection | DOAJ |
| description | Abstract This paper applies a recent method proposed by Maggiori (The U.S. Dollar Safety Premium, 2013) to estimate the Swiss franc safety premium. The results show that the three-step instrumental variable approach as used by Maggiori does not work for the Swiss franc exchange rates. The price of risk estimates take unrealistic, negative values. One possible explanation is that the approach as it is used by Maggiori suffers from a measurement error for the expected exchange rate which represents a potential source of imprecision. By using the prediction of an augmented Fama regression to measure the expected exchange rate change, this measurement error can be avoided and the safety premium estimates become more realistic and closer to those obtained with a maximum likelihood-estimated GARCH approach. Overall, however, the GARCH approach still seems to be preferable to the instrumental variable approach. |
| first_indexed | 2024-12-20T20:30:04Z |
| format | Article |
| id | doaj.art-39e65d93780e4699b9965d6f1e10e9ed |
| institution | Directory Open Access Journal |
| issn | 2235-6282 |
| language | English |
| last_indexed | 2024-12-20T20:30:04Z |
| publishDate | 2018-04-01 |
| publisher | SpringerOpen |
| record_format | Article |
| series | Swiss Journal of Economics and Statistics |
| spelling | doaj.art-39e65d93780e4699b9965d6f1e10e9ed2022-12-21T19:27:23ZengSpringerOpenSwiss Journal of Economics and Statistics2235-62822018-04-01154112110.1186/s41937-017-0014-7The Swiss franc safety premiumJessica Leutert0Department of Economics, University of LausanneAbstract This paper applies a recent method proposed by Maggiori (The U.S. Dollar Safety Premium, 2013) to estimate the Swiss franc safety premium. The results show that the three-step instrumental variable approach as used by Maggiori does not work for the Swiss franc exchange rates. The price of risk estimates take unrealistic, negative values. One possible explanation is that the approach as it is used by Maggiori suffers from a measurement error for the expected exchange rate which represents a potential source of imprecision. By using the prediction of an augmented Fama regression to measure the expected exchange rate change, this measurement error can be avoided and the safety premium estimates become more realistic and closer to those obtained with a maximum likelihood-estimated GARCH approach. Overall, however, the GARCH approach still seems to be preferable to the instrumental variable approach.http://link.springer.com/article/10.1186/s41937-017-0014-7Exchange ratesSafe haven currencySwiss franc |
| spellingShingle | Jessica Leutert The Swiss franc safety premium Swiss Journal of Economics and Statistics Exchange rates Safe haven currency Swiss franc |
| title | The Swiss franc safety premium |
| title_full | The Swiss franc safety premium |
| title_fullStr | The Swiss franc safety premium |
| title_full_unstemmed | The Swiss franc safety premium |
| title_short | The Swiss franc safety premium |
| title_sort | swiss franc safety premium |
| topic | Exchange rates Safe haven currency Swiss franc |
| url | http://link.springer.com/article/10.1186/s41937-017-0014-7 |
| work_keys_str_mv | AT jessicaleutert theswissfrancsafetypremium AT jessicaleutert swissfrancsafetypremium |