Monetary Policy In A Small Open Economy Model: A DSGE-VAR Approach for Switzerland

The authors study the transmission of monetary shocks and monetary policy with a behavioral model, corrected for potential misspecification using the DSGE-VAR framework elaborated by DelNegro and Schorfheide (2004). In particular, they investigate if the central bank should react to movements in the nominal exchange rate. They contribute to the empirical literature as they use Swiss data, which is very rarely used in that context. During the past two decades, many countries have moved their monetary policy regime to inflation targeting.