Chart 8: Proportion of part-time workers  Percentage of total employed 30 25 20 15 10 1985  1988  1991  1994  1997  2000  2003  Source: ONS and Bank calculations  BIS Review 16/2005  11  Chart 9: Real household disposable income growth and terms of trade  Percentage change on a year earlier 8.0  1990 = 100 112  Real household income growth  6.0 108  4.0 2.0  104  0.0 100  -2.0  Terms of trade  -4.0  96  -6.0 -8.0 1990  92 1992  1994  1996  1998  2000  2002  2004  Chart 10: Margins on personal loans to households  Per cent 10.0 8.0 6.0 4.0 2.0 0.0 1993  1995  1997  1999  2001  2003  Source: Bank calculat ions.
In the long run, both the real exchange rate and the surplus increase over time. Thus, the theory that a stronger real Swiss franc automatically leads to a lower current account surplus does not hold empirically for Switzerland. Why is this? Let’s look at Figure 3, which shows the trade account and current account balances for selected countries. If a country’s current account surplus is primarily determined by its trade account in goods, then we might expect an appreciation to result in a smaller surplus, through lower exports and higher imports. The underlying assumption in many economic models is that current account adjustment comes about primarily through the trade-in-goods component. Switzerland is different to most other countries, in that its trade account balance in goods represents only a small fraction of the large current account surplus. This stands in stark contrast to other economies such as China, where goods trade makes up more than 80% of the current account surplus. So, if the Swiss current account is not driven by the trade balance in goods, then what are the factors responsible for its surplus? As we can see from Figure 4, the large surplus in the  3  See, for example, Joseph E. Gagnon (2013): “The Elephant Hiding in the Room: Currency Intervention and Trade Imbalances”, Working Paper Series WP13-2, Peterson Institute for International Economics. 2  BIS central bankers’ speeches  current account is mainly attributable to two components: investment income and services. The figure shows just the net amounts for these components.