Skip to main content


Capital Flows and the Swiss Franc

  • 605 Accesses


The Swiss franc is known to appreciate strongly during financial market turmoil, demonstrating its status as a typical safe haven currency. One possible mechanism behind this appreciation during times of global turmoil is assumed to be higher capital inflows to Switzerland. This paper attempts to find some empirical evidence for this presumption. The analysis reveals that capital flow variables are not necessarily coincident with the movements of the Swiss franc. Interest rate differentials, a traditional determinant of exchange rates, co-move only weakly with Swiss franc movements. However, a robust and stronger link between variables that capture global or regional market uncertainty and movements of the Swiss franc is observed. Specifically, the information channel rather than new cross-border investment is found to be coincident with the Swiss franc. The weak link between capital flows and the exchange rate is confirmed to some extent for some other countries.


  1. Altermatt, Lukas and Romain Baeriswyl (2015), “The effect of the monetary base expansion on the balance sheet of domestic banks”, SNB Quarterly Bulletin, No.2015.Q1, Swiss National Bank.

  2. Auer, Raphael (2015), “A safe haven: international demand for Swiss francs during the Euro Area debt crisis”, SNB Quarterly Bulletin, No 2015.Q2, Swiss National Bank.

  3. Avdjiev, Stefan, Robert N. Mccauley, and Hyun Song Shin (2015), “Breaking free of the triple coincidence in international finance”, BIS Working Papers, No. 524, Bank for International Settlements.

  4. Bakardzhieva, Damyana, Sami Ben Naceur, and Bassem Kamar (2010), “The impact of capital and foreign exchange flows on the competitiveness of developing countries”, IMF Working Paper, No. 10/154, International Monetary Fund.

  5. Botman, Dennis, Irineu de Carvalho Filho, and W. Raphael Lam (2013), “The curious case of the Yen as a safe-haven currency: a forensic analysis”, IMF Working Paper, No. 228, International Monetary Fund.

  6. Broner, Fernando, Tatiana Didier, Aitor Erce, and Sergio L. Schmukler (2013), “Gross capital flows: dynamics and crises”, Journal of Monetary Economics, 60(1), pp. 113–133.

  7. Brooks, Robin, Hali Edison, Manmohan S. Kumar, and Torsten Slok (2004), “Exchange rates and capital flows”, European Financial Management, 10(3), pp. 511–533.

  8. Brunnermeier, Markus K., Stefan Nagel, and Lasse H. Pederson (2008), “Carry trades and currency crashes”, in NBER Macroeconomics Annual 2008, Daron Acemoglu, Kenneth Rogoff, and Michael Woodford, eds., vol. 23, pp. 313–347.

  9. Bruno, Valentina and Hyun Song Shin (2013), “Capital flows, cross-border banking and global liquidity”, NBER Working Paper, No. 19038, National Bureau of Economie Research.

  10. Combes, Jean-Louis, Tidiane Kinda, and Patrick Plane (2012), “Capital flows, exchange rate flexibility, and the real exchange rate”, Journal of Macoeconomics, 34(4), pp. 1034–1043.

  11. De Bock, Reinout and Irineu de Carvalho Filho (2015), “The behavior of currencies during risk-off episodes”, Journal of International Money and Finance, 53, pp. 218–234.

  12. De Carvalho Filho, Irineu (2015), “Risk-off episodes and Swiss franc appreciation: the role of capital flows”, German Economie Review, 16(4), pp. 439–463.

  13. Dornbusch, Rudiger (1976), “Expectations and exchange rate dynamics”, Journal of Political Economy, 84(6), pp. 1161–1176.

  14. Fleming, J. Marcus (1962), “Domestic financial policies under fixed and floating exchange rates”, IMF Staff Papers, 9, pp. 369–379, International Monetary Fund.

  15. Forbes, Kristin J. and Francis E. Warnock (2012), “Capital flow waves: surges, stops, flight, and retrenchment”, Journal of International Economics, 88(2), pp. 235–251.

  16. Galati, Gabriele, Alexandra Heath, and Patrick Mcguire (2007), “Evidence of carry trade activity”, BIS Quarterly Review, September, Bank for International Settlements.

  17. Grisse, Christian and Thomas Nitschka (2015), “On financial risk and the safe haven characteristics of Swiss franc exchange rates”, J’ournal of ’Empirical Finance, 32, pp. 153–164.

  18. Habib, Maurizio Michael and Livio Stracca (2012), “Getting beyond carry trade: What makes a safe haven currency”, Journal of International Economics, 87(1), pp. 50–64.

  19. Habib, Maurizio Michael and Livio Stracca (2013), “Foreign investors and risk shocks: seeking a safe haven or running for the exit?”, ECB Working Paper Series, No 1609, European Central Bank.

  20. Hoffmann, Mathias and Rahel Suter (2010), “The Swiss franc exchange rate and deviations from uncovered interest parity: global vs domestic factors”, Swiss Journal ofEconomics andStatistics, 146(1), pp. 349–371.

  21. Hossfeld, Oliver and Ronald Macdonald (2015), “Carry funding and safe haven currencies: A threshold regression approach”, Journal of International Money andFinance, 59, pp. 185–202.

  22. IMF (2012), “Article Iv staff report on Switzerland”, International Monetary Fund.

  23. Kraay, Aart, Norman Loayza, Louis Servén, and Jaume Ventura (2005), “Country portfolios”, Journal of the European Economie Association, 3(4), pp. 914–945.

  24. Kugler, Peter and Beatrice Weder (2005), “Why are returns on Swiss franc assets so low?”, Applied Economics Quarterly, 51(3), pp. 231–246.

  25. Lane, Philip and Gian Maria Milesi-Ferretti (2007), “Capital flows to central and Eastern Europe”, Emerging Markets Review, 8(2), pp. 106–123.

  26. Lartey, Emmanuel K. K. (2008), “Capital inflows, resource reallocation and the real exchange rate”, International Finance, 11(2), pp. 131–152.

  27. Lartey, Emmanuel K. K. (2011), “Financial openness and the Dutch disease”, Review of Development Economics, 15(3), pp. 556–568.

  28. Mancini Griffoli, Tommaso, Christoph Meyer, Jean-March Natal, and Attilio Zanetti (2015), “Determinants of the Swiss franc real exchange rate”, Swiss Journal of Economics and Statistics, 151(4), pp. 299–331.

  29. Mundell, Robert (1963), “Capital mobility and stabilization policy under fixed and flexible exchange rates”, Canadian Journal of Economics and Political Science, 29(4), pp. 475–485.

  30. OECD (2011), “Economie survey of Switzerland”, Organization for Economie Co-operation and Development.

  31. Powell, Andrew and Pilar Tavella (2012), “Capital inflow surges in emerging economies: how worried should LAC be?”, RES Working Papers, No. 4782, Inter-American Development Bank Research Department.

  32. Ranaldo, Angelo and Paul Söderlind (2010), “Safe haven currencies”, Review of Finance, 14(3), pp. 385–407.

  33. Rey, Helene (2015), “Dilemma not trilemma: the global financial cycle and monetary policy independence”, NBER Working Paper Series, No. 21162, National Bureau of Economie Research.

  34. Saborowski, Christian (2009), “Capital inflows and the real exchange rate: can financial development cure the Dutch disease?”, IMF Working Paper, No. 09/20, International Monetary Fund.

  35. Yeşin, Pinar (2015), “Capital flow waves to and from Switzerland before and after the financial crisis”, Swiss Journal of Economics and Statistics, 151(1), pp. 27–75.

Download references

Author information

Correspondence to Pınar Yeşin.

Additional information

I thank two anonymous referees, Philippe Bacchetta, Adrian Bruhin, Andreas Fischer, Christian Grisse, Henrike Groeger, Christoph Meyer, seminar participants at the Swiss National Bank, and conference participants at the 2013 Conference of the Swiss Society of Economics and Statistics in Neuchâtel for their helpful comments and discussions. I also thank Elisabeth Beusch and Henrike Groeger, who provided excellent research assistance at different stages of this project. Any remaining errors are my own. The views expressed in this paper are those of the author and do not represent those of the Swiss National Bank.

Rights and permissions

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

Cite this article

Yeşin, P. Capital Flows and the Swiss Franc. Swiss J Economics Statistics 153, 403–436 (2017).

Download citation

  • JEL-ckssification
  • F21
  • F31
  • F32


  • Exchange rate
  • safe haven currency
  • gross capital flows
  • net flows
  • private flows